George: This just doesn’t work!! - Posted by Jerry Menke
Posted by Jerry Menke on October 28, 2000 at 15:26:28:
My friend, you need to find something a little less ambitious.
It would appear the asking price is too high, however, even if it was in
line, if you are lacking any funds for the down payment, closing costs and escrows, you need to
lower your standards. Check with Mr. Garcia on buying SFR?s with
zero down - and go from there. Grow your ability, and pay your dues.
Slowly, you?ll get there.
Here?s how your project laid out:
$125,719 (noi) / .1075 (cap rate) - (the amort. period was reduced to 20 years due to age) = $1,171,000
Annual income/expense analysis current
Gross income per unit annually $12,347.14
Net income per unit annually $ 8,980.00
Gross income per unit monthly $ 1,28.92
Net income per unit monthly $ 748.33
Number of units in project 14
Laundry $ 1,020.00
Total gross income $172,860.00
Vacancy and collection loss $ 8,643.00
Effective gross income $164,217.00
Insurance $ 2,141.04
Management fee $ 8,210.00
Trash Removal $ 600.00
Landscape/Lawn Maintenance $ 1,200.00
Repairs/Maintenance $ 2,400.00
SPA Service $ 600.00
Utilities $ 7,200.00
Interphone $ 240.00
Total annual operating expenses $ 35,497.04
Reserves for replacement $ 3,000.00
Annual net operating income $125,719.96
Effective annual N.O.I. $125,719.96
Being this far off on the asking price, leaves little room to negotiate on this deal. With a subordinate loan of the $300,000 and a first mortgage of the difference (if you were to buy it for the value above) your total DSC would exceed the NOI. Don’t buy based on “potential income” unless you have money to carry a project through.
But wish you well on your next one.