Inspection Costs On An 8 Plex

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I have made an offer on a 20 year old, cinderblock construction 8 unit apartment building in the Phoenix area. Total sqaure footage 4500. What should I be charged to do an inspection of the property. Thanks for the help.

Comments(16)

  • miggs25th March, 2005

    I anywhere from $750.00 for a very basic inspection with no much info in the report up to $1500.00 for a full inspection and report, it takes at lease 15-20 minutes per unit.

  • robh223rd March, 2005

    Expenses I added more to the expenses so now its 6700.00. There are no closing costs.

    Accounting and Legal Fees $200.00
    Advertising, Licenses and Permits $200.00
    Property Insurance $1,200.00
    Offsite Property Management $1,100.00
    Payroll - Onsite Manager $-
    Payroll - Benefits $-
    Payroll - Workers Compensation $-
    Payroll - Social Security $-
    Payroll - Medicare $-
    Payroll - Misc $-
    Leasing Commissions $200.00
    Real Estate Taxes $1,800.00
    Repairs and Maintenance $1,200.00
    Services - Janitorial / Cleaning $200.00
    Services - Lawn / Landscaping $200.00
    Services - Pool $-
    Services - Trash Removal $200.00
    Supplies $200.00

    This changed as follows at 800 ea per mo with 10% vac built into GOI:

    Expense Calculations
    Gross Operating Income (+) $34,560.00
    Total Operating Expenses $6,700.00
    Net Operating Income (NOI) $27,860.00
    Annual Debt Service $21,715.00
    Before Tax Cash Flow (BTCS) $6,145.00
    Expenses % of Gross Opr. Income 17.448%
    Total Expenses + Vacancy 27.448%
    Total remaining before debt service 72.552%
    Debt Service Percentage 56.549%
    Total Remaining after debt service 16.003%
    Before Tax Cash Flow Percentage 17.781%

    Investment Metrics
    Debt Service Coverage Ratio (DSCR) 1.282984112
    Gross Rent Multiplier (GRM) 8.85
    Capitalization Rate (CAP RATE) 8.194%
    Cash-On-Cash Return 9.04%

    Tax Implications
    Your Tax Bracket 33.00%
    Taxes $2,027.85
    After Tax Cash Flow $4,117.15

    Thanks.

  • senorgarcia589023rd March, 2005

    My own thoughts coming from someone with limited experience. First your cash flow is there your making out at the end of the year roughly 4000 from your calculations (which are padded with all sorts of worst case scenarios), more when you bump the rents up to fair market. Second you get the tax deduction which has a benefit. Third You said its in an up an coming area, on avg nationwide property values are going up 6% which in this case is conservative and would equate to $20,400 per year. You could cash out 40 - 60 thou depending on wether or not you sold the property yourself . My vote if the cash is available and you can live with out it do it. If anythinf refi after 3 years instead of selling and pull equity out.

    If your going to be living in one of them why do they want so much down?

    The only thing I would consider tweaking is the out of pocket?

  • roberth25th March, 2005

    Have you considered a cash flow arm w/ 10 % down and a start rate of 1.375% NOO on one of the duplexes and a 1% OO on the one you will live in.
    That is only on the first 80% with a 10% second.
    The debt service then would be around $13500 yr with less out of pocket and much higher cash flow per month( about double), with about the same amount of appriciation either way. This would also help you out with DTI when looking for your next loan to build your new home.

    Good Luck,
    Robert

  • roberth25th March, 2005

    Have you considered a cash flow arm w/ 10 % down and a start rate of 1.375% NOO on one of the duplexes and a 1% OO on the one you will live in.
    That is only on the first 80% with a 10% second.
    The debt service then would be around $13500 yr with less out of pocket and much higher cash flow per month( about double), with about the same amount of appreciation either way. This would also help you out with DTI when looking for your next loan to build your new home.

    Good Luck,
    Robert

  • cjmazur25th March, 2005

    from what I see the problem will be getting and keeping them rented.

  • robh225th March, 2005

    Roberth--I am looking into the ARM you mentioned. Thanks for your suggestion.

    CJ--How can you tell by looking at the numbers that it will be hard to keep them rented? There are a lot of casinos, Military bases and many other transient jobs that keep the rental market in pretty good shape where these units are.

    Thank you everyone.

  • robh225th March, 2005

    Roberth--I am confused. Do I figure the payments based off of the percent listed? Some places are quoting 1.25. Do I look at it like a regular loan just put 1.5 in the percentage column? That makes it interest only right? Anything I pay over goes to principal?

    Thanks.

  • cjmazur25th March, 2005

    One way caprate has been explained to me is the "amount" one pays for a certain cashflow so a cap rate of 10, is paying less than a cap rate of 8. So the 8 would be higher risk.

    Note that these can be reported as decimals (e.g. .10 and .08) so maybe that let to some confusion?

  • roboxking27th March, 2005

    As a lender, when I see high cap rate deals..I first look to see why and hope that the investor found a good deal. But...when it is average for the neighborhood then it is usually a "higher risk area." Meaning that if I had to foreclose I would have to carry it for longer (marketing time). Thus higher risk for the lender but better for the real estate investor.

    Hope that helps.

  • roboxking27th March, 2005

    Normally capitalization rates nowadays are normally 7-10% in big cities and 9-12% elsewhere. ON AVERAGE, but there are always exceptions.

  • Maurioso26th March, 2005

    Sounds to me like you found a good deal but the negative voice in back of your head is giving you 1000 reasons not to move forward. As long as your credit is decent you can get a residential loan because you are not dealing with 5+ units. I need more information to refer you to the right place to start your investment career. All I know is you will not need 20% down to make this deal work trust me.

  • KeithMartin26th March, 2005

    After posting this I did a bit more research and discovered that 5 is the magic number for commercial loans. I believe this is good news for me due to my limited down payment money. What types of things do I need to learn about this property that I may be missing? How do I workout mathematicaly if this makes sense? monthly income-loan payments-PMI-Tax-upkeep-some padding ?
    Keith Martin

  • InActive_Account26th March, 2005

    You need to find a calculator and start plugging in numbers.

    However - If you do 100% financing you will lose money.

    Between PI
    Insurance (roughly 1200 - but get quaotes in your area)
    Taxes (are you sure? who told you that number? look up yourself)
    PMI (unless you can come up with 20%)

    mangement - you doing it yourself? a PM will be 10% of the rents

    repairs, vacancy etc.

    With 2600 max coming in - I think you will find you will be a little negative.

  • KeithMartin27th March, 2005

    Thanks for the replies everyone

    hoober- taxes are fairly low here but i put the number for one unit for both is around $2200. I would be managing myself.

    pvm- I was planing on some type of 90/10 or other "no traditional" loan to help a little with the monthly nut. The rents are pretty well in line with the area. I could maybe get $50-100 more a month at the expense of running off some really great tenants. The quality of tenant and no vacancy is what attracted me to the property in the first place.

    On whole I think hes asking to much to make this work for me right now. I going to try and get the price down a little and see what kinds of creative loans I can get.

    Keith

  • InActive_Account27th March, 2005

    It comes down to how much you put down at the type/interest rate.

    I still think you will be a little negative.

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