Deal analysis.....What do you think? - Posted by Eric in FL

Real Estate Investing
1

Posted by Steve on November 01, 2002 at 19:28:41:

A proforma is exactly that… a proforma. What you need is actual numbers. These expenses look to be a bit on the light side. I do not know your area so I cannot comment on the expenses too well. In general the insurance, management, maintenance, and replacement reserve all look questionable which would, of course, make the rest seem questionable.

Also the proforma is telling you what the rents will be. You need to be careful with these figures as they are not there yet. You need to do your evaluation based on what the actual income is. If the vacancy and income loss is currently at 10%, what will happen as the rents get increased?

I use a basic rule of thumb on expenses in my location at about $2600-2800 per unit per year and adjust based on other factors. Each area will vary based on insurance, taxes, etc… It will also vary with turnover rates. This helps me to see how close the marketing numbers are. If the financials seem to make sense, I will offer and hopefully tie it up while I dig in to the actual numbers.

Bottom line is that I see this one as having the potential of very low cashflow. You will need to determine this yourself though.

This seems like a pretty good sized deal to be looking for advice on.

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Deal analysis…What do you think? - Posted by Eric in FL

Posted by Eric in FL on November 01, 2002 at 17:42:05:

I wanted to post current info on a deal I am working on and see if you believe the expenses and NOI are legitimate. I will be going to look at the property tomorrow and have a offer in mind but want to see what you guys would offer to maximize cash flow. Thanks in advance.

18 tri-plex buildings
54 apartments
Total square footage - 37,224

Unit Breakdown
1 bedroom/1 bath - 18
2 bedroom/1 bath - 36

The property was built in 1982 by the current owner/developer. Each building consists of 2 - 2BR/1 BA apartments and 1 - 1BR/1 BA. The units are equipped with refrigerator, oven/range, dishwasher and approximately 1/3 of the units have washer/dryers. All, but 6, units have washer/dryer hookups. Each apartment has a private, fenced patio. All appliances and heating and air conditioning systems are electric. Each building has 7-8 parking spaces directly in the front. (See attached layout of the complex). The buildings are frame construction with stucco cover.

The property is very attractive with trees, bushes, flower beds, etc. There is a “Gatorwood” sign at the entrance and a separate covered mailbox building which we maintain although it is used by all of the apartment communities on the street.

Gatorwood was the original community, then other similar buildings have been added by several different entities over the years. The most recent being built in 1998.

There is currently a resident leasing agent on the property receiving free rent in exchange for leasing apartments, arranging for repairs, etc. The management company is located in Gainesville, Florida.

Current rents are $320 and $410.All existing tenants are being increased to the new rate at their lease expirations and all new tenants will be at the new rate. This rate became effective 6/1/02. The tenants pay all utilities: electric, water, sewer, refuse removal, etc. The complex provides monthly pest control, lawn service, building maintenance, street lights, etc. The refuse is collected at a dumpster located at the rear of the property, which is owned by the city.

Financial Information

Proforma

INCOME
Gross Possible $246,240
Less Vacancy 24,624 10%
Other Income 480
Forf. Deposits
Total Income $ 224,296

EXPENSES
Advertising 1,488
Legal 219
Lawn Care 4,320
Licenses 275
Maintenance 10,800
Management 9,960
Utilities 1,320
Insurance 5,400
Taxes 21,600
Office Rent 3,840
Pest Control 1,620
Replacements 3,500
Total Expense $ 64,342

Net Oper. Income $159,954

Debt Service 101,436

NET CASH FLOW $ 58,518

NOI 159,954
Sales Price 1,440,000
Cap Rate 11.11%

Down Payment 288,000
Net Cash Flow 58,518
Annual ROI 20.32% *

Thanks,
Eric