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What do you think of these numbers?

R

Runman

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Oct 22, 2009
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Hey everyone,

I was hoping you guys could let me know your opinions on these numbers.

Property located in an ontario metropolitan area. Listed at 452,500
10 units
Gross operating income: 73932
less vacancy (5%) 70235.70
less expenses NOI 30429.94

Taxes 14047.00 Mortgage 24413.40 20% down @ 6% int. for 35 years
Utilities 12265.48
Insurance 3700.08 Cash Flow 6016.54 year or 501.38 month before taxes
Managment 7393.20
Maint. 2400
Total expenses 39805.76

Please let me know what you all think on this.
Thanks

Josh
 
QUOTE (Runman @ Nov 17 2009, 02:05 AM) Hey everyone,I was hoping you guys could let me know your opinions on these numbers.Property located in an ontario metropolitan area. Listed at 452,500
10 units
Gross operating income: 73932
less vacancy (5%) 70235.70
less expenses NOI 30429.94

Taxes 14047.00 Mortgage 24413.40 20% down @ 6% int. for 35 years
Utilities 12265.48
Insurance 3700.08 Cash Flow 6016.54 year or 501.38 month before taxes
Managment 7393.20
Maint. 2400
Total expenses 39805.76

Please let me know what you all think on this.
Thanks

Josh

If your #`s are correct.
Income=73932/10/12=$616.10/unit/month
Expenses=14047+24413.40+12265.48+3700.08+7393.20+2400=64219.16
Cashflow=(73932-64219.16)= 9712.84/12 = $809.40/month!

At the very least, I would say your maintenance allowance is way low, by a factor of 5-10X depending on the condition of the building.

What gives?
 
Using 50% as a estimate of all expenses and applying at least a 5% return on your cash down payment I calculate your positive cash flow at about $670-$680 per month.
Not that good and personally I would want more than 5% on my cash.

Are the rents at market? Is this a building that is stagnated with long term tenants?

In my opinion the income is pulling down the value of this property and as such I would be making a much lower offer even though the price per door does not seem too bad.
 
QUOTE (invst4profit @ Nov 17 2009, 10:31 AM) In my opinion the income is pulling down the value of this property and as such I would be making a much lower offer even though the price per door does not seem too bad.

Odd?

Wouldn`t the 1% rule make this property a contender even at 600K?
 
It would normally but the cash flow on this with 10 units should be a minimum of 100/month/door. I would prefer to see rent income in the 7,000 range or above. That`s only 700/month which should be do able depending on location.
Besides if his asking price is $452,000 you know it will sell for less, maybe 4. Hard to say what the circumstances are but possibly a seller situation that can be taken advantage of. Maybe a VTB with very attractive terms.
What we don`t know is the condition of the building, neighbourhood, tenant class etc to really be able to evaluate the deal.
Personally my biggest concern is always long term tenants. I prefer tenant rollover in a new purchase if rents need to be adjusted or if I want to upgrade to get higher rents.
Ontario is not LL friendly in this regard.
 
I don`t believe we know where the building is, yet?

On the surface this appears to be a good deal, but maybe it is in a bad neighbourhood in Windsor. Not enough information to about the condition of the building/tenant profile/location to know whether its really a good deal or not.
 
The operating expenses are over 50% of gross revenue, so you may find that a lender won`t give you as high a mortgage as you wanted. I spoke to a commercial lender on a multi-family building with a 52%expense to gross revenue ratio. He said lenders want to see expenses at a maximum of 40% of gross revenue. He calculated a much lower mortgage amount than 80% LV.

You could show the numbers to a commercial mortgage broker who`ll quickly give you a mortgage amount based on the existing numbers. Then you can make a lower offer on the property.

If it`s an older building, maintenance will most likely be around 10% of gross revenue over time.

Margaret
Hey everyone,

I was hoping you guys could let me know your opinions on these numbers.

Property located in an ontario metropolitan area. Listed at 452,500
10 units
Gross operating income: 73932
less vacancy (5%) 70235.70
less expenses NOI 30429.94

Taxes 14047.00 Mortgage 24413.40 20% down @ 6% int. for 35 years
Utilities 12265.48
Insurance 3700.08 Cash Flow 6016.54 year or 501.38 month before taxes
Managment 7393.20
Maint. 2400
Total expenses 39805.76

Please let me know what you all think on this.
Thanks

Josh
 
QUOTE (Runman @ Nov 17 2009, 12:05 AM) ..

Please let me know what you all think on this.
42/door is a very decent price ... if not in a small dieing town or class C neighborhood of a big city !

R&M is too low .. budget at least $8,000/year for an older 10 plex building

rest decent .. at 20% down it will not cash-flow .. thus likely you will not be able to get a 20% down mortgage unless decently upgraded !

what about major items like: roof, boiler, hallway carpets ? this is on top of the $8,000/year R&M
 
Thanks to everyone for there responses.

The building is quite old so I should probably run the numbers again budgeting for higher maintance and repair costs. As thomas said, this is then probably not going to cashflow. And when your paying that kind of money with 10 units, I would expect to get a least a little cash flow!



QUOTE (ThomasBeyer @ Nov 17 2009, 10:58 PM) 42/door is a very decent price ... if not in a small dieing town or class C neighborhood of a big city !

R&M is too low .. budget at least $8,000/year for an older 10 plex building

rest decent .. at 20% down it will not cash-flow .. thus likely you will not be able to get a 20% down mortgage unless decently upgraded !

what about major items like: roof, boiler, hallway carpets ? this is on top of the $8,000/year R&M
 
Heck, you should be able to get a lot of cash flow.

Run the numbers again and use them to justify a ridiculously low offer. What have you got to lose as long as the number works in your favour. If you are not embarrassed by your offer you offered too much (especially if he takes it).

The last property I bought I offered $170,000 (34%) below asking resulting in a price drop of $115,000 plus I negotiated a VTB for 75%.

Remember great deals aren`t found they are negotiated.
 
QUOTE (Runman @ Nov 18 2009, 11:28 AM) Thanks to everyone for there responses.

The building is quite old so I should probably run the numbers again budgeting for higher maintance and repair costs. As thomas said, this is then probably not going to cashflow. And when your paying that kind of money with 10 units, I would expect to get a least a little cash flow!

there is NO CASH flow with old buildings in a rent controlled province !

you get eaten by R&M and capital costs - FOR YEARS !!!

Cash-flow happens after you do all the repairs, raise rents and then re-finance appropriately.

This usually does work well in SK and AB, but poorly in BC or ON due to rent control laws !!!

Thus: this building might be a headache / money pit FOR YEARS.

have a good look at all the common elements: roof, boiler, hallways, plumbing, in-suite status .. $10-$15,000 per suite PLUS new roof of $30,00 plus boiler for $15,000 plus hallway carpets of $10,000 .. so $200,000 CASH to fix it ..

Thus, rent control means: deteriorating buildings i.e. SLUMLORDING is the only way to make money .. not my way to do business .. but a way .. so this may make sense only if it is CHEAP CHEAP CHEAP (20/door ?) or the possibility to raise rents !

$1 cash to mortgage might be an acceptable price .. might ! So ask him to carry a VTB or create a mortgage of $200,000 .. then you will buy it for $1 cash to mortgage .. plus your cash outlay for upgrades as you move through time !!
 
I wouldn`t buy it for more than $300,000.

Based on my calculations, for me to get $100 a door per month positive cashflow I`d need to buy it at $300K.

Watch out for these older buildings.
They can become a monster headache.

Good luck.








QUOTE (ThomasBeyer @ Nov 18 2009, 07:40 PM) there is NO CASH flow with old buildings in a rent controlled province !

you get eaten by R&M and capital costs - FOR YEARS !!!

Cash-flow happens after you do all the repairs, raise rents and then re-finance appropriately.

This usually does work well in SK and AB, but poorly in BC or ON due to rent control laws !!!

Thus: this building might be a headache / money pit FOR YEARS.

have a good look at all the common elements: roof, boiler, hallways, plumbing, in-suite status .. $10-$15,000 per suite PLUS new roof of $30,00 plus boiler for $15,000 plus hallway carpets of $10,000 .. so $200,000 CASH to fix it ..

Thus, rent control means: deteriorating buildings i.e. SLUMLORDING is the only way to make money .. not my way to do business .. but a way .. so this may make sense only if it is CHEAP CHEAP CHEAP (20/door ?) or the possibility to raise rents !

$1 cash to mortgage might be an acceptable price .. might ! So ask him to carry a VTB or create a mortgage of $200,000 .. then you will buy it for $1 cash to mortgage .. plus your cash outlay for upgrades as you move through time !!
 
QUOTE (ThomasBeyer @ Nov 18 2009, 05:40 PM) there is NO CASH flow with old buildings in a rent controlled province ! I wouldn`t generalize. of course there is if you buy for the right price! sometimes old≠bad.

you get eaten by R&M and capital costs - FOR YEARS !!!

Cash-flow happens after you do all the repairs, raise rents and then re-finance appropriately.

This usually does work well in SK and AB, but poorly in BC or ON due to rent control laws !!!

Thus: this building might be a headache / money pit FOR YEARS.

have a good look at all the common elements: roof, boiler, hallways, plumbing, in-suite status .. $10-$15,000 per suite PLUS new roof of $30,00 plus boiler for $15,000 plus hallway carpets of $10,000 .. so $200,000 CASH to fix it ..

Thus, rent control means: deteriorating buildings i.e. SLUMLORDING is the only way to make money .. not my way to do business .. but a way .. so this may make sense only if it is CHEAP CHEAP CHEAP (20/door ?) or the possibility to raise rents !

$1 cash to mortgage might be an acceptable price .. might ! So ask him to carry a VTB or create a mortgage of $200,000 .. then you will buy it for $1 cash to mortgage .. plus your cash outlay for upgrades as you move through time !!
 
QUOTE (ThomasBeyer @ Nov 18 2009, 07:40 PM) there is NO CASH flow with old buildings in a rent controlled province !

you get eaten by R&M and capital costs - FOR YEARS !!!

Cash-flow happens after you do all the repairs, raise rents and then re-finance appropriately.

This usually does work well in SK and AB, but poorly in BC or ON due to rent control laws !!!

Thus: this building might be a headache / money pit FOR YEARS.

have a good look at all the common elements: roof, boiler, hallways, plumbing, in-suite status .. $10-$15,000 per suite PLUS new roof of $30,00 plus boiler for $15,000 plus hallway carpets of $10,000 .. so $200,000 CASH to fix it ..

Thus, rent control means: deteriorating buildings i.e. SLUMLORDING is the only way to make money .. not my way to do business .. but a way .. so this may make sense only if it is CHEAP CHEAP CHEAP (20/door ?) or the possibility to raise rents !

$1 cash to mortgage might be an acceptable price .. might ! So ask him to carry a VTB or create a mortgage of $200,000 .. then you will buy it for $1 cash to mortgage .. plus your cash outlay for upgrades as you move through time !!

Can someone quickly explain what a VTB is exactly?
 
VTB- Vendor Take Back.

The individual selling the property holds the mortgage or a portion of the mortgage.
 
QUOTE (evanwright @ Nov 20 2009, 01:00 PM) Can someone quickly explain what a VTB is exactly?Vendor Take Back mortgage .. usually a mortgage in 2nd position behind a first .i.e. the seller becomes the bank allowing you time to upgrade the property .. then sell or re-finance at better values down the road .. usually 1 to 3 years at a low interest .. but negotiable .. a great purchasing tool.

Could be 100% vendor financed .. or 80% .. could be 0% or 2% or 18% .. whatever is agreed on by buyer and seller !

We use it quite a bit !
 
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