Ed or Ray, need HELP with multi-unit funding!!!!!!!!!! - Posted by tim fl

Posted by Bob-MD on March 04, 2000 at 07:56:34:

You said that you have been setting up your own page for about four months. Where did you start getting information? Are you using a commercially available program? I haven’t seen anything from Steve Case on the subject (you said you e-mailed him)

Any help would be appreciated.


Ed or Ray, need HELP with multi-unit funding!!! - Posted by tim fl

Posted by tim fl on March 01, 2000 at 16:48:55:

I need to know what I should do with this deal we just found. There is a great upside potential and it will have a positive cash flow at this current price. Please help me see my options. I ran all the numbers, getting funding is the only thing I’m not totally sure on.

Here’s some of the numbers (all based on $3.775 mil):
Price- asking $4,220,000 but said will go to $3,775,000
243 units
8 different bulildings (all right next to each other)
$15,534 per unit average
$28.45 per Sq. Ft. Avg.
Cap Rate= 12%
Gross Rent= $1,279,100
Gross Income= $904,400
Total Exp.= $451,364
NOI= $453,037

Please let me know what you think. The units were 100% full before the present owner bought them. He then fired the onsite managers and tired to run it himself. I think there is good potential here. Some of the units are Sec. 8 now, and you can either keep them that way or change them. The rents are a little below market the way it sits now. Everything else in the area is selling for at least $30,000 per unit, but I would say the average is in the high 30’s.

Please let me know what you think.

Tim FL

PS. We had a blast in Atlanta, Thanks!

Re: Ed or Ray, need HELP with multi-unit funding!!! - Posted by Ed Garcia

Posted by Ed Garcia on March 01, 2000 at 20:58:48:


I’m sorry to say, that when I see a deal like this I have a battery of questions.

(1) You state, The units were 100% full before the present owner bought them. He then fired the
onsite managers and tired to run it himself. I think there is good potential here.

That leads me to believe that the units are now experiencing some delinquency. I would like to
know what it is?

(2) I would like to know what the delinquency for the area is?

(3) I would to know the unit mix?

(4) Have you seen a current rent roll?

(5) Have you verified expenses for the last three years?

(6) Your numbers going in look great, to good, so I need to know the geographic and demographics
of the area. Another words what’s going on in the area ?

(7) I would like to know, if each of the eight buildings are on separate lots, or are they all on one parcel?

(8) I would like to know what kind of existing financing is on the units?

(9) I would like to know if you have approached the seller to do a carry back?

(10) I would like to know what are the cap rates being enjoyed in the area?

Tim, these are just some basic questions to get the ball rolling, to see if the is a deal, and how we can structure it.

Tim, you also state, There is a great upside potential and it will have a positive cash flow at this current price.

Tim, it’s obvious that you’re buying this below market based on replacement cost. But I have no feel
for market rents. As a matter of fact, you don’t even say where this deal is located.

Answer the above questions and then we can go from there. I need more info?

If you would like to contact me at my office I can then ask you some personal questions about you, your credit, and personal financial information. You can reach me at (909) 944-0199.

Ed Garcia

Re: Ed or Ray, need HELP with multi-unit funding!!! - Posted by tim fl

Posted by tim fl on March 02, 2000 at 10:12:07:


Sorry I forgot some info, here is most of what you wanted. If you would like I can call you sometime tommorrow if you let me know what the best time is. Today might be tough, I will be in and out all day.

The vacancy rate is 29% avg. for all units, but some buildings are greater then others. I would say the vacancy for the surrounding area is about 7%, but I am going to varify that figure within the next few days.

The mix of units is the following:
14-eff.; 170-1/1’s; 59-2/1’s

Yes, I have a copy of the current rent roll. It’s from Dec '99.

I haven’t yet varified the expenses for the last three years. I just got this deal yesterday, from a broker we work with. I wanted to run the numbers before I went any further and that’s what I came up with. I will do that next. Also, would you please tell any other info you might need, so I can ask the sellers for it.

The units are 2-3 blocks from downtown. The city has just began to pour lots of money into the downtown area and the city as a whole. There is a brand new (less then 1 yr old) gated development that is right next to the units.

The buildings are all on seperate lots. And there is a total of three different mortgages on those 8 buildings. They are seperated into three groups: 46 units, 92 untis, and 105 untis. You can buy any one or all three, but they want to sell them all. None of the mortgages are assumable. We are also told that the seller will carry back some paper but not all.

The cap rates of the surrounding areas are 8-9%. Again I will varify that info within the next few days.

The units are located in South Florida, just north of Ft. Lauderdale. I belive the rents are at least $100 below market per unit. Again, I will varify this in the next fews days.

Like I said before. I just came across this deal yesterday. I ran the numbers and I believe there is a deal here. The location is good and there is lots of potential. The current owner is a bankers son who wanted to get into RE, but had no clue about it. He took these units and just let them go. There is terrible management, he lets his best friend manage them, and no one on site. The deal looks good because there is potential here, but there is also work ahead, to get these units turned around. There is also another 26 units, but they are the most expensive and in the worst shape. No one thinks the 26 are worth it, but they are availible.

Well, I hope that helps. I will be doing more research and we will be going to tour the units at the beginning of next week (Mon.).

Tim Fl

Re: Ed or Ray, need HELP with multi-unit funding!!! - Posted by ray@lcorn

Posted by ray@lcorn on March 02, 2000 at 12:11:36:


Ed and I will approach this deal in pretty much the same way, and I would ask much the same questions as Ed has already asked. So after you have that information, and assuming that the deal is still a deal after that, there are some additional items that need attention.

As you inspect the property, keep an eye out for deferred maintenance items. In a situation such as this, there will most likely be a whole list of items that would normally be routine maintenance, but with bad or non-existent management doesn’t get done. Notice roofing, gutters, storm drainage facilities, paving, sidewalks, exterior paint or siding problems, etc. South Florida is very humid (duh!) and the toll on exterior finishes and roofs is severe. If it has a terracotta or ceramic tile roof, that will minimize the ongoing maintenance. I’ve also seen mold growths on siding and brick in coastal areas that requires pressure washing every other year.

Concrete work in coastal areas is prone to “spauling”, which is a chemical reaction between the salt air and the materials used in the concrete. The concrete actually deteriorates and must be replaced. A/C systems get a heavy workout, and should be serviced on a regular basis. Ask to see the maintenance records (if any). Dirty filters alone can ruin a unit after a long period of time. In short, be aware that the work needed to “catch-up” the maintenance items after a period of neglect can be considerable. BOLO: Be on the Lookout!

Assuming that the initial numbers and inspections check out, you will want to do a full blown due diligence investigation. I would pay close attention to the utility bills on this project. I generally try to get at least two years of the monthly bills showing both gallons and dollars in order to see the seasonality of the use, as well as any potential leaks. On the average, a household will use about 5000 gallons of water per month. If it is a multiple meter property, then you should be able to isolate the use per building, and apply the occupancy data to check per unit usage.

I have a list of generic due diligence items that I have shared before and have promised to post here when we get the commercial corner up and running. If you need it beforehand, let me know and I will email it to you as a Word attachment.

Last is the Section 8 leases. You cannot just “change them”. The government has some pretty strict requirements for ending a Section 8 lease. Foreclosure wipes them out, but there are plenty of attorneys that will argue otherwise. Better to not argue. You will need to know that duration of all existing Sec. 8 leases and the provisions for their renewal. You will be limited in the amount of rent increases, but if as you think the rents are below market, that and planned capital improvements can be a help in justifying an increase.

I like the general sound of the deal. Above all, take Ed up on his offer to help you on the phone. He has a way of looking at deals that will help a lot.

Good luck, and good work! (The harder I work the luckier I get!)


Misplaced post??? - Posted by Chris

Posted by Chris on March 02, 2000 at 17:01:35:

Where is Robert Campbell’s post?

Misplaced post? Yes . . . it somehow got emailed to S. Case - Posted by Robert M. Campbell

Posted by Robert M. Campbell on March 02, 2000 at 19:42:51:

Steve Case accidently got my discussion board post emailed to him.

Must be a delayed Y2K thing or something.

I already wrote to Steve about this. I believe a lot of people will benefit from reading it . . . so I hope Steve has the technical ability to get it on the board. I know I sure don’t.

I’ve been creating my own real estate web site for the last 4 months and I’ve gone from complete idiot to semi-expert.

My post went over the basics . . . so the readers on this site can get a BIG jump-start on building a successful web site.

Robert M. Campbell