30 unit apartment - Posted by Willie

import · February 25, 2001, 6:43pm

Posted by Jim Rayner on February 28, 2001 at 22:19:51:

Deal Analysis Complete Analysis

Asking Price 1,350,000.00
Asking GRM 5.64
Scheduled Monthly Rental Income 21,000.00
Total number of units 30.00
Average unit monthly rent 700.00
Vacancy Percentage 0.05
Adjusted Gross Rental Income 239,400.00
Expense allowance 0.40
Estimated Expenses 95,760.00
Net Operating Income 143,640.00
Analyzed Capitalization Rate 0.11
Valuation Capitalization Rate 0.11
Estimated Value Of Income Stream 1,305,818.18
Criteria Required Capitalization Rate 0.1550
Recommended Maximum Offer Price 926,709.68
Deferred Maintenance Estimate 60,000.00
Final Maximum Offer Price 866,709.68

Conventional Financing

Purchase Price 867,000.00
Percentage Down Payment 20.00%
Cash Down 173,400.00
New Financing 693,600.00
New interest rate 9.50%
New Amortization term in months 240.00
Monthly Payment 6,465.26
Annual Debt Service 77,583.14
Debt Coverage Margin 1.85
Gross Annual Profit 66,056.86
Gross Return On Investment 38.10%

import · February 25, 2001, 6:43pm

30 unit apartment - Posted by Willie

Posted by Willie on February 25, 2001 at 19:43:59:

Hello,

I am completely new at real estate investing. I want to get started and I want to think big (reasonably big) However, I am very interested in this 30 unit apartment building for sale. Please help me with all the expenses that I need to be aware of because it sounds too good to be true.

30 units
-Asking Price is $1,350,000
-Average rent is $700
-100% rented with a waiting list
-decent area and in good condition in and out

I don’t know what the financing terms will be for this investment but I can put down 5% (I know its not a lot). I figure 8% interest for 30 years which gives me a P&I of approx $9400. Rent of $700 times 30 units is $21,000. That gives a monthly cash flow of about $11,600. I figure I’d have to now include the following:

Taxes
Insurance
vacancy factor
maintenance
Management fees

I don’t know what else to include but my uneducated guess would be monthly expenses of maybe $5,000. If so, then $11,600 minus $5,000 would give me a positive monthly cash flow of $6,600!

Am I missing something??? I have an appointment with the seller this coming Thursday.

Thanks in advance
Willie

import · February 26, 2001, 6:39pm

Re: 30 unit apartment - Posted by Andrew Smith (Phila)

Posted by Andrew Smith (Phila) on February 26, 2001 at 19:39:48:

It sounds interesting. The individual who posted the note stating that if the price were under $900,000 it would be very interesting obviously knew what he was talking about. I purchased 34 units last year with a gross income of around $180,000 for $580,000. We wrote the sale up at $600,000 with the seller giving me a credit of $20,000 at settlement towards closing costs. The seller took back a loan in 2nd position to the banks. The sellers loan was for $160,000 which basically financed my downpayment. All the numbers worked and the bank was fully aware of the sellers second. It amounted to very little money out of my pocket. By the way - if you extrapolate my numbers to fit your senario of having a cash flow of $252,000 you would get a selling price in the $800s. Good luck with your deal.

import · February 26, 2001, 6:01am

Comments on Commercial Mortgages Please - Posted by Frank Chin

Posted by Frank Chin on February 26, 2001 at 07:01:35:

I’ve been looking at neighborhoond strips and apartment buldings lately. My prior experience had been with condo’s, MF, SFH.

You asked the question: - am I missing something ???

Looks like the P&I you cited is for a home loan type mortgage. For commercial mortgages, they talk about 20 year amortization, with principal payments of 5% per year. On a $1,300,000 loan, that’ll be about $65,000 per year. Interest of 8% for 1,300,000 comes to $10,800 annually. Interest payments drop off more quickly for these.

In that case, the monthly cash flow of $6,000 would be paying the principal payment of $65,000/year. Its OK if you’re a doctor or dentist paying off a $1,300,000 loan as a retirement plan.

Oftentimes, they offer seller financing. I ask for a ten year mortgage with a balloon. The plan is the get a commercial mortgage in ten years to refinance out when the rents are higher. Owners in their seventies usually balk at 20 year terms.

This is what I’ve been faced with looking at commercial propeties here in New York City. Interest rates cited is 8.5%.

Would those with experience with commercial mortgages jump in on this.

Willie, I’m also interested to see what the actual numbers is for the commercial mortgage. Thanks

Thank you.

import · February 25, 2001, 9:41pm

Re: 30 unit apartment - Posted by Jim Rayner

Posted by Jim Rayner on February 25, 2001 at 22:41:26:

Willie,

Based on the following:

expenses 40%
vacancy 5%

financing 80% ltv 20% DP 240 Amort.
allowance of 60K for deferred maintenance

this would start to look like a deal at a maximum purchase price of 867K.

import · February 28, 2001, 10:45am

Re: 30 unit apartment - Posted by Mark Nyman

Posted by Mark Nyman on February 28, 2001 at 11:45:41:

Jim,
How did you arrive at the $867,000 maximum purchase price?

What is DP 240?

On the $60000 of deferred maintenance are you factoring that in as a one time expense when considering purchasing the property?

What would your annual cash flow be based on the $867k purchase price?

Mark