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Real Estate Investing Forums | Real Estate Investing | Commercial, Mobile Homes, Self Storage, Notes, Land Forum (Moderators: $Cash$, Bluemoon06, kdhastedt, Mdhaas, motivatedceo) | Topic: Great Deal « previous next »
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Author Topic: Great Deal  (Read 1317 times)
SamuelCoronado
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« on: December 31, 2011, 11:39:21 AM »

There are 15 trailers and one five plex involved in the deal. The owner is asking 275K, but I am working him down to 200K. 12 of the trailers and 2 of the apartments are already filled up. Each one rents for 160 a week.



160 x 14 x 52 (weeks in a year) = $116,480/ year.



Expenses are:

 2K insurance

2k taxes

50k utilities

120 bank fees

300 accounting.



The property has a net operational income of about

5500 a month.



I am having a little trouble finding the financing for this deal.

What advice would be good here?


I am willing to give 8% for 10 years for $200K for private money.
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Gold River
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« Reply #1 on: December 31, 2011, 06:34:28 PM »

Hi,

    Easy does it there, your putting the cart in front of the horse!

$166,400 - 20 units - $160 x 20 x 52
$24,960  - 15% vacancy factor - Weekly Rentals - Typical vacancy factor
$141,440
$70,720  - 50 / 50 rule

$70,720  - 50% of net income - Expenses
____________________________
$  2,000  - Insurance
$  2,000  - Taxes
$50,000  - Utilities
$16,640  - Property Management
$  9,600  - Exterior Maintence
$  9,600  - Interior Maintence
$  4,800  - Housekeeping - Cleaning between tenants
$  7,000  - Replacement Cost Appliances
$15,000  - Major Replacement Cost
$  2,400  - Advertising Cost
$     600  - Office Supplies
$  1,800  - Legal Cost
$12,000  - Water and Sewer
$  1,800  - Trash
$             - Snow removal
$             - Landscaping Maintence
___________________________
$135,240 - Expenses per year
$  70,720 - Budget
___________________________
<$64,520> - Negative over budget


$70,720  - Debt service budget
$64,520  - Negative from above
___________________________
$6,200   - Adjusted Debt service budget
$10,800  - Debt service $160k @ 5.5% - $900 per month
___________________________
<$4,600> - Negative

$00.00  - Positive Cash Flow


I think I would re-work your numbers, this does not even appear to be a deal at $200k!


                                 GR
« Last Edit: January 01, 2012, 03:10:07 AM by Gold River » Report to moderator   Logged
davewindsor
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« Reply #2 on: January 01, 2012, 12:37:23 PM »

Hi,

    Easy does it there, your putting the cart in front of the horse!

$166,400 - 20 units - $160 x 20 x 52
$24,960  - 15% vacancy factor - Weekly Rentals - Typical vacancy factor
$141,440
$70,720  - 50 / 50 rule

$70,720  - 50% of net income - Expenses
____________________________
$  2,000  - Insurance
$  2,000  - Taxes
$50,000  - Utilities
$16,640  - Property Management
$  9,600  - Exterior Maintence
$  9,600  - Interior Maintence
$  4,800  - Housekeeping - Cleaning between tenants
$  7,000  - Replacement Cost Appliances
$15,000  - Major Replacement Cost
$  2,400  - Advertising Cost
$     600  - Office Supplies
$  1,800  - Legal Cost
$12,000  - Water and Sewer
$  1,800  - Trash
$             - Snow removal
$             - Landscaping Maintence
___________________________
$135,240 - Expenses per year
$  70,720 - Budget
___________________________
<$64,520> - Negative over budget


$70,720  - Debt service budget
$64,520  - Negative from above
___________________________
$6,200   - Adjusted Debt service budget
$10,800  - Debt service $160k @ 5.5% - $900 per month
___________________________
<$4,600> - Negative

$00.00  - Positive Cash Flow


I think I would re-work your numbers, this does not even appear to be a deal at $200k!


                                 GR

Hey GR,

I'm curious how did you arrive at some of these budget estimates that lenders use as I'd like to use them in some of my own offers like $  9,600  - Exterior Maintenance, $  9,600  - Interior Maintenance, $  4,800  - Housekeeping - Cleaning between tenants, $  7,000  - Replacement Cost Appliances, $15,000  - Major Replacement Cost, $  2,400  - Advertising Cost, $     600  - Office Supplies, $  1,800  - Legal Cost.?

Advertising is 4X the cost of office supplies, exterior maintenance is the same as the cost of interior maintenance and both are 10%? of gross rents.  Housekeeping is 2.5%  The expenses are all divisible by $200.   How did you get $15K for major replacement?   I still can't figure some of it out.  Is there there a list of posted budget percentages somewhere?  Is there a webpage link somewhere or book you got it from?  Not even my thousand dollar appraisals give such a detailed breakdown.  It's very interesting. 
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« Reply #3 on: January 01, 2012, 09:28:49 PM »

GR prices are a little high I think you can do better if you would trim some fat of off Gr predictions.
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Gold River
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« Reply #4 on: January 02, 2012, 01:45:58 AM »

Hi,

    Easy does it there, your putting the cart in front of the horse!

$166,400 - 20 units - $160 x 20 x 52
$24,960  - 15% vacancy factor - Weekly Rentals - Typical vacancy factor
$141,440
$70,720  - 50 / 50 rule

$70,720  - 50% of net income - Expenses
____________________________
$  2,000  - Insurance - Supplied by Sam
$  2,000  - Taxes - Supplied by Sam
$50,000  - Utilities - Supplied by Sam
$16,640  - Property Management - 10% of Gross Potential Revenue
$  9,600  - Exterior Maintence - Weekly Rentals - $40 dollars per unit per month - $480 per year - If these were 1 year leases I would figure this at $20 per month per unit
$  9,600  - Interior Maintence - Weekly Rentals - $40 dollars per unit per month - $480 per year - If these were 1 year leases I would figure this at $20 per month per unit
$  4,800  - Housekeeping - Cleaning between tenants - Weekly Rentals - $60 per cleaning - 20 cleanings per quarter - 80 Cleanings per year
$  7,000  - Replacement Cost Appliances - Weekly Rentals - $7000 x 10 = $70,000 ~ $3,500 per unit / 10 years - Appliances / Hot Water Heater / HVAC / Smoke Detectors / Door Locks / Lights / Fans / Garbage Disposals
$15,000  - Major Replacement Cost - Mobile Home Life Span 30 years as rentals - $15,000 x 30 = $450,000 ~ $30,000 per Mobile Home Replacement - This major replacement includes Roofing Replacement / Major Repairs / Roads / Sidewalks / Utility Connections / Irrigation / Landscape Replacement / Fire - Life - Safety Compliance
$  2,400  - Advertising Cost - $200 per month - $50 Week - Weekly Rental year round advertising to keep unit's filled
$     600  - Office Supplies - $50 per month - Paper / Printer Ink / Office Supplies / etc.
$  1,800  - Legal Cost - 20 Units - Weekly Rentals - $90 per unit per year
$12,000  - Water and Sewer - $1,000 per month - $50 per unit
$  1,800  - Trash - $150 per month - $35 per week
$             - Snow removal
$             - Landscaping Maintence
___________________________
$135,240 - Expenses per year
$  70,720 - Budget
___________________________
<$64,520> - Negative over budget


$70,720  - Debt service budget
$64,520  - Negative from above
___________________________
$6,200   - Adjusted Debt service budget
$10,800  - Debt service $160k @ 5.5% - $900 per month
___________________________
<$4,600> - Negative

$00.00  - Positive Cash Flow


Dave I hope you understand these figures!  Real Estate Seller - What ??????????? 

This is not my property however just because Sam originally did not include most of these items does not mean they do not exist! This does not litterally mean that every unit will have problems during a year, however as weekly rentals this budget is probable on the tight side as I suspect demand for repairs and rerplacement will be huge!


                                 GR
« Last Edit: January 02, 2012, 02:47:48 AM by Gold River » Report to moderator   Logged
davewindsor
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« Reply #5 on: January 02, 2012, 06:48:18 AM »

Hi,

    Easy does it there, your putting the cart in front of the horse!

$166,400 - 20 units - $160 x 20 x 52
$24,960  - 15% vacancy factor - Weekly Rentals - Typical vacancy factor
$141,440
$70,720  - 50 / 50 rule

$70,720  - 50% of net income - Expenses
____________________________
$  2,000  - Insurance - Supplied by Sam
$  2,000  - Taxes - Supplied by Sam
$50,000  - Utilities - Supplied by Sam
$16,640  - Property Management - 10% of Gross Potential Revenue
$  9,600  - Exterior Maintence - Weekly Rentals - $40 dollars per unit per month - $480 per year - If these were 1 year leases I would figure this at $20 per month per unit
$  9,600  - Interior Maintence - Weekly Rentals - $40 dollars per unit per month - $480 per year - If these were 1 year leases I would figure this at $20 per month per unit
$  4,800  - Housekeeping - Cleaning between tenants - Weekly Rentals - $60 per cleaning - 20 cleanings per quarter - 80 Cleanings per year
$  7,000  - Replacement Cost Appliances - Weekly Rentals - $7000 x 10 = $70,000 ~ $3,500 per unit / 10 years - Appliances / Hot Water Heater / HVAC / Smoke Detectors / Door Locks / Lights / Fans / Garbage Disposals
$15,000  - Major Replacement Cost - Mobile Home Life Span 30 years as rentals - $15,000 x 30 = $450,000 ~ $30,000 per Mobile Home Replacement - This major replacement includes Roofing Replacement / Major Repairs / Roads / Sidewalks / Utility Connections / Irrigation / Landscape Replacement / Fire - Life - Safety Compliance
$  2,400  - Advertising Cost - $200 per month - $50 Week - Weekly Rental year round advertising to keep unit's filled
$     600  - Office Supplies - $50 per month - Paper / Printer Ink / Office Supplies / etc.
$  1,800  - Legal Cost - 20 Units - Weekly Rentals - $90 per unit per year
$12,000  - Water and Sewer - $1,000 per month - $50 per unit
$  1,800  - Trash - $150 per month - $35 per week
$             - Snow removal
$             - Landscaping Maintence
___________________________
$135,240 - Expenses per year
$  70,720 - Budget
___________________________
<$64,520> - Negative over budget


$70,720  - Debt service budget
$64,520  - Negative from above
___________________________
$6,200   - Adjusted Debt service budget
$10,800  - Debt service $160k @ 5.5% - $900 per month
___________________________
<$4,600> - Negative

$00.00  - Positive Cash Flow


Dave I hope you understand these figures!  Real Estate Seller - What ??????????? 

This is not my property however just because Sam originally did not include most of these items does not mean they do not exist! This does not litterally mean that every unit will have problems during a year, however as weekly rentals this budget is probable on the tight side as I suspect demand for repairs and rerplacement will be huge!


                                 GR

Hi GR,

Thanks for the trailer estimates, but the OP lists 15 trailers and one - 5 plex to make it 20 units.  What is the per unit replacement cost and lifespan of the 5 plex?  Let's assume the 5 plex is brick/block exterior and concrete construction.  What about the other estimates?  What if the seller asks where you got that information from? 

DW
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Pawan77
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« Reply #6 on: January 02, 2012, 11:56:22 AM »

GR,

Good analysis as usual.. .
I think the property management is a little high. Industry standards are 5-7% of gross effective rentals, which is $9900 on the high end. you considered 10% , is it standard for trailer business?

Regards
Pawan
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Gold River
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« Reply #7 on: January 02, 2012, 01:01:10 PM »

Hi,

    Your right Dave, it only gets worse as I never factored remodeling of any of the 5 plex rental unit's and I never included a cost to remove snow or attend to lawn and landscape!

That 5 plex would run say for 500 sq. ft. units about $20k per unit to remodel provided the gut's electrical, mechanical and plumbing were up to 1978 or newer building codes, if this was built in the 50's or 60's then I would probable replace gut's in the first remodel which means it run's $35k per unit worst case first remodel.

Commercial Residential properties usually run for estimating purposes 10% of rents! Now that figure might be reduced by having management on site in a big complex, however 20 unit's may not be big enough to have management on site and the industry standard for property management companies is 10% for residential properties!

Being weekly rentals even if salary was not literally 10% an owner may be forced to provide a unit $8320 per year plus monthly salary $693 dollars to get someone to manage the property!


                                   GR
« Last Edit: January 02, 2012, 01:08:11 PM by Gold River » Report to moderator   Logged
davewindsor
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« Reply #8 on: January 02, 2012, 05:40:24 PM »

Hi,

    Your right Dave, it only gets worse as I never factored remodeling of any of the 5 plex rental unit's and I never included a cost to remove snow or attend to lawn and landscape!

That 5 plex would run say for 500 sq. ft. units about $20k per unit to remodel provided the gut's electrical, mechanical and plumbing were up to 1978 or newer building codes, if this was built in the 50's or 60's then I would probable replace gut's in the first remodel which means it run's $35k per unit worst case first remodel.

Commercial Residential properties usually run for estimating purposes 10% of rents! Now that figure might be reduced by having management on site in a big complex, however 20 unit's may not be big enough to have management on site and the industry standard for property management companies is 10% for residential properties!

Being weekly rentals even if salary was not literally 10% an owner may be forced to provide a unit $8320 per year plus monthly salary $693 dollars to get someone to manage the property!


                                   GR

Hi GR,

I don't think the OP was looking for a complete remodelling estimate, just what the operating estimates would be on a 5 - plex, as the OP states that 2 of 5 units are already rented.  It may just be that the rents are too high for this area and condition and that's why 3 of them are vacant.  Personally, I would see no sense in remodelling a 5 plex in a trailer park (like replacing the kitchen cupboards or installing granite countertops): people who live in this area on a fixed income most likely can't pay the extra amount that would justify a remodelling at $20K a unit--I think lowering the rents for this kind of clientelle might be a better strategy to increasing the fill rate.

DW
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Gold River
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« Reply #9 on: January 02, 2012, 08:25:13 PM »

Hi,

    When buying any commercial property every one of these item's is correct! I would be doing this guy a disservice and injustice pretending that you only have insurance, taxes, electric, bank fee's and accounting!

It's not very responsible of me to sit and pretend everything is ok! For most of the fellow investors on this site learning every property is not a deal is sometimes hard to swallow, but it's a reality of investing!

We were not remodeling but as a precurser to projecting a reserve we have to estimate these hard and soft cost's in order to put some number in! Remember lenders have an underwriter and risk manager who is looking to whether you know what your doing by reviewing your financial projections!

You have to meet basic state housing standards or your considered a slum landlord!

At some point you have to remodel as your property loses with age the ability to command market rents and decreases the older the property becomes!

If we did not have to remodel I would be renting George Washington's cabin at Valley Forge for premium rental rates!

Why would this seller sell a property that is supposed to create $66,000 per year and can pay for it's self over and over every three years????


                                  GR

« Last Edit: January 02, 2012, 08:29:36 PM by Gold River » Report to moderator   Logged
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Real Estate Investing Forums | Real Estate Investing | Commercial, Mobile Homes, Self Storage, Notes, Land Forum (Moderators: $Cash$, Bluemoon06, kdhastedt, Mdhaas, motivatedceo) | Topic: Great Deal « previous next »
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