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[ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] Re: Looks good based on San Diego prices... Posted by garyr on March 02, 2004 at 4:34 PM In Reply to: Re: Looks good based on San Diego prices... posted by jon on March 02, 2004 at 8:23 AM : : : Thanks in advance for your reply....... : : : Property= 5 units (house plus 2 x duplexes) : : : rents = $4170 per month (750 per duplex unit, 1000 for house and 170 for 2 garage/storage units) : : : operating expenses including vacancy allowance, insurance, taxes, water, garbage, upkeep. : : : = $848 per month : : : Seller getting divorce, foreclosure looming. : : : sale price is 360K (which was a full price offer which they would have received by any other party only I have a friend whom is a real estate agent who sent this one my way before actually listing on the MLS) : : : obtaining 1st for 252K at 9.9% for 18 months interest only. : : : seller carry back 2nd for 108K at 10% for 18 months int. only.a : : : (so essentially no money down from me the buyer) : : : plan to refinance after seasoning of 1 year. : : : fix up costs to be incurred(my money)the first year is approx 50k which I plan to recoup with refi. : : : property is beautiful Northern Ca foothills property and is 1.4 acres in very desirable renting/living area. inspections have come up clean (septic etc)other than the repairs I am going to do myself (stated above at 50K). Keep in mind I am very handy when it comes to all the fix up stuff and can do 90% of it myself as I do this for a living, buy and sell property (mostly flips), but have never done a multifamily for which I plan to keep as an income producing property. The Appraisal is not in as of yet. : : : Good deal? Fair deal? : : : If this deal was presented to you without the sale price figures above, what would be the price you would be willing to pay for such a property? What would you have done differently? : : : thanks again. : : : Jon- Northern CA where the market is still hot. : : ================ : : Jon, : : A quick, rule-of-thumb determination of the merits of the sale price of income property is to look at its gross price multiplier. It's derived by dividing its sales price by its annual, gross scheduled income. In your case it comes to 7.2 times the gross. Compared to our current prices for income property (around 10 times the gross) your deal seems like a great bargain. : : In addition, your 100% financing is great and it looks like you'll net $390.00 per month after deducting financing costs and operating expenses. : : My only question is, how much extra income do you expect to earn by spending the additional $50K in fix-up? : : Another way to analyze the value of income property is by determining its cap (capitalization) rate. This approach requires you to assume you're paying all cash ($360,000) for the Value of the property. From your annual Gross Scheduled Income subtract your annual Operating Expenses and you will find your Annual Net Income (ANI). If you divide your ANI by the Value you will determine the cap rate on your $360K cash investment. So let's do the math and figure out the cap rate on this deal. : : $4,170 minus 848 = $3,322 net monthly income : : $3,322 x 12 = $39,864 Annual Net Income (ANI) : : $360,000 = Value (cash investment) : : $39,864/360,000 = 11.0% Cap Rate : : This approach allows you to compare the cap rates of different properties and determine which one throws off the greatest annual return. One thing to remember is that you haven't taken into consideration the value of your time devoted to operating the property. So it's cap rate shouldn't be compared to what you would make putting your $360K in a passive investment, like a bank savings account, mutual fund account, etc. : : Hope this helps. : Ward- i expext to get my 50K back when I refi in one year conventionaly (seasoning) : thanks for the advise. That's where you would get the $$ from, but what would that $50k earn for you? What's the return on investment? Increased rents? If so, how long until they would recoup the $50k? Increased resale value? Not short term important if you holding long term. Follow Ups: Post a Followup: Name : E-Mail : Subject : Comments: : : : : Thanks in advance for your reply....... : : : : Property= 5 units (house plus 2 x duplexes) : : : : rents = $4170 per month (750 per duplex unit, 1000 for house and 170 for 2 garage/storage units) : : : : operating expenses including vacancy allowance, insurance, taxes, water, garbage, upkeep. : : : : = $848 per month : : : : Seller getting divorce, foreclosure looming. : : : : sale price is 360K (which was a full price offer which they would have received by any other party only I have a friend whom is a real estate agent who sent this one my way before actually listing on the MLS) : : : : obtaining 1st for 252K at 9.9% for 18 months interest only. : : : : seller carry back 2nd for 108K at 10% for 18 months int. only.a : : : : (so essentially no money down from me the buyer) : : : : plan to refinance after seasoning of 1 year. : : : : fix up costs to be incurred(my money)the first year is approx 50k which I plan to recoup with refi. : : : : property is beautiful Northern Ca foothills property and is 1.4 acres in very desirable renting/living area. inspections have come up clean (septic etc)other than the repairs I am going to do myself (stated above at 50K). Keep in mind I am very handy when it comes to all the fix up stuff and can do 90% of it myself as I do this for a living, buy and sell property (mostly flips), but have never done a multifamily for which I plan to keep as an income producing property. The Appraisal is not in as of yet. : : : : Good deal? Fair deal? : : : : If this deal was presented to you without the sale price figures above, what would be the price you would be willing to pay for such a property? What would you have done differently? : : : : thanks again. : : : : Jon- Northern CA where the market is still hot. : : : ================ : : : Jon, : : : A quick, rule-of-thumb determination of the merits of the sale price of income property is to look at its gross price multiplier. It's derived by dividing its sales price by its annual, gross scheduled income. In your case it comes to 7.2 times the gross. Compared to our current prices for income property (around 10 times the gross) your deal seems like a great bargain. : : : In addition, your 100% financing is great and it looks like you'll net $390.00 per month after deducting financing costs and operating expenses. : : : My only question is, how much extra income do you expect to earn by spending the additional $50K in fix-up? : : : Another way to analyze the value of income property is by determining its cap (capitalization) rate. This approach requires you to assume you're paying all cash ($360,000) for the Value of the property. From your annual Gross Scheduled Income subtract your annual Operating Expenses and you will find your Annual Net Income (ANI). If you divide your ANI by the Value you will determine the cap rate on your $360K cash investment. So let's do the math and figure out the cap rate on this deal. : : : $4,170 minus 848 = $3,322 net monthly income : : : $3,322 x 12 = $39,864 Annual Net Income (ANI) : : : $360,000 = Value (cash investment) : : : $39,864/360,000 = 11.0% Cap Rate : : : This approach allows you to compare the cap rates of different properties and determine which one throws off the greatest annual return. One thing to remember is that you haven't taken into consideration the value of your time devoted to operating the property. So it's cap rate shouldn't be compared to what you would make putting your $360K in a passive investment, like a bank savings account, mutual fund account, etc. : : : Hope this helps. : : Ward- i expext to get my 50K back when I refi in one year conventionaly (seasoning) : : thanks for the advise. : That's where you would get the $$ from, but what would that $50k earn for you? What's the return on investment? Increased rents? If so, how long until they would recoup the $50k? Increased resale value? Not short term important if you holding long term. Optional Link URL: Link Title: Optional Image URL: [ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] WWWAdmin 2.0a © 1997 Matt Wright and DBasics Software Company, All Rights Reserved

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