Can You Analyze This Multi-unit Deal?
Okay, so there is a deal that has come across my lap and I am interested in pursuing. Half of my portfolio I am looking to fill with rental income, especially good properties with a decent amount of tenants so I can have that every month, etc.
So I am wondering of course a decent amount of things like:
How do I determine value of these properties?
How do I do my due diligence in finding out if any repairs need to be done?
What things do I need to think about while working on this deal?
Here are the specifics so let me know what you all know or can come up with:
How many tenants are in there now? See below
What are the rents? See below income statement
What are the expenses? See below income statement
What repairs need to be done? Essentially no repairs (touch up paint, etc.), but he is refurbishing one of the empty units with flooring, paint, etc.
Is everything up to code? He is replacing the lead based pipes in the basements of each building to the modernized style of piping, thus bring it to code.
Here are the details:
Two Side-by-side Apartment Buildings
Eleven Total Units
1248 Bates – Four Large 1BR Units and One 2BR Large Unit
1250 Bates – Six Large 1BR Units
Separate Furnaces in All Eleven Units – TENANTS PAY THEIR OWN HEAT!
Currently only Two VACANCIES!
Long Term Tenants
Very Clean and Well Maintained Buildings
On-site Maintenance Man
Solid Brick Buildings
Current Gross Cash Flow - $3,270/mo.
Current rents are low and NEED to be raised
NEEDS NO REHAB AT ALL!
See the below income statement:
Profit and Loss Statement
CURRENT RENTS POTENTIAL MARKET RENTS
First Property
Unit 1 - 1BR Effic $ 270.00 $ 300.00
Unit 2 - 1BR Effic $ 275.00 $ 300.00
Unit 3 - 1BR Effic $ 300.00 $ 300.00
Unit 4 - 1BR Effic $ 275.00 $ 300.00
Unit 5 - 2 BR $ 325.00 $ 500.00
Second Property
Unit 6 - 1BR $ 325.00 $ 375.00
Unit 7 - 1BR $ 325.00 $ 375.00
Unit 8 - 1BR $ 325.00 $ 375.00
Unit 9 - 1BR $ 350.00 $ 375.00
Unit 10 - 1BR $ 300.00 $ 375.00
Unit 11 - 1BR $ - $ 375.00
Total Monthly Income $ 3,070.00 $ 3,950.00
Monthly Expenses
First Property
Cinergy (House) $ 85.00 $ 85.00
Water (House) $ 153.00 $ 153.00
Taxes $ 242.36 $ 242.36
Second Property
Cinergy (House) $ 110.00 $ 110.00
Water (House) $ 113.00 $ 113.00
Taxes $ 233.96 $ 233.96
Insurance $ 308.33 $ 308.33
Maintenance Man (Lives in Unit 9) $ 100.00 $ 100.00
Total Monthly Expense $ 1,345.65 $ 1,345.65
Any help would be greatly appreciated.
Best,
_________________
Christian Beebe "The Solutions Kid"
[ Edited by SolutionsKid on Date 03/06/2006 ]
Bump. Anyone else have some insight for Christian?
Christian might get a better response if he posts this question in the Multi-Family Forum on the Commercial Board.
Good call, I will post over there.
Thanks.
[addsig]
Robert,
Right. The lower the CAP rate%, the higher the FMV with be. As in your example, a CAP of 8% yields a higher FMV than a CAP of 16%- actually double in that case.
Also, a higher NOI equals a higher FMV given the same cap rate.
[ Edited by bradfordtm on Date 03/10/2006 ]
if a higher cap rate translates to a higher positive cashflow, then why does it reduce property value?
Quote:On 2006-03-10 12:49, anoutsidedog wrote:
if a higher cap rate translates to a higher positive cashflow, then why does it reduce property value?
We should also note that the Cap Rate calculations are done without regard to financing. Instead, the calculations are done using all the costs of ownership and operations you would have if the property is owned free and clear.(or you are paying cash with no mortgage debt).
A higher Cap Rate does not automatically translate into higher cash flow. It only translates into a higher NOI relative to the Value of the property.
It is possible to have a decent Cap Rate and still have a negative cash flow if the property is too highly leveraged at an unfavorable interest rate. For example, consider a $50K property that has an NOI of $5K. A 10% Cap Rate is acceptable to most investors.
If you get 100% financing at 7% fixed for 15 years, your monthly loan payments will be $449.41. At the end of the year, your loan payments will be $392.97 greater than your NOI. Any unscheduled repairs that may come up, or an unexpected vacancy, and you will be even deeper into negative cash flow territory.
thanks, and sorry to stray so far from the original post.
All good, actually good information to know so thanks all.
Now I just have to figure out the best way to get financed and inspect these bldgs.
[addsig]