Re: WE know you are new to the site… - Posted by JT - IN
Posted by JT - IN on August 29, 2001 at 17:04:44:
You are going to hate me before this is over.
Karens post: “it would be likely no money down, 100% financed. (I can do this by re financing another property).”
Well, if you are finaincing against another property, then you are actually putting up a down payment, it is just not coming out of your pocket. It is still a Down Payment. It also matters greatly what that down payment is, amount and percentage.
I like to use NOI, (Net Operating Income), when evaluating multifamily properties. The only way to get NOI, is to have the answer to most of the questions, that I asked in the earlier post. But just to try to give you a general overview, I will give an example of NOI.
Lets say you had a property that had a gross rentroll of $ 10,000 per month, or $ 120,000 per year. The expenses, including taxes, ins, maint, and amortized replacements was 38%, or $ 45,600 pe ryear, leaving you $ 74,400 NOI. Now, based upon the type of property, construction, condition and neighborhood, you will decide as an investor what CAP rate (Capitalization Rate) you are willing to accept. If you had all Section 8 tenants, which can tend to be labor intensive, then you will need a higher CAP, (maybe a 12 or 14) which gives you a better return. If it is a pristine property, in the best area for appreciation, low maintenance and turnover, you may have to accept an CAP of 9, giving you a lower return. It just depends upion the property, area and what you the investor, are willing to accept.
With the example of the $ 74,400 NOI, and a CAP of 12, the proeprty would be worth about, $ 620,000. the same NOI, with a CAP rate of 9, would make the proeprty worth $ 826,666.
Most people, when evaluating multifamily properties, leave out some of the expenses,or generalize. this will always cost you. get the specifics and if guestimates are required, “Guess High”. If you are going to make an error, make it in your favor.
Enough for now.
Just the way that I view things…
JT - IN