OfflineI'm looking into purchasing 3 condos together. How do I calculate my offer amount? I remember reading something about the Net Operating Income and was wondering how you worked that into the equation.
I'm waiting to get some comps on other condos that have sold recently.
Thanks
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First find out the FMV (RMV-real market value) for what other similar condos in area or similar condos in same complex if it's there all located in same building sold for per sqft. Are you going to provide any appliances e.g. washer/dryer(rental) besides standard appliances? Calculate monthly rental income from providing this service. Are you going to cover HOA (if there's one)? Trash/water? These are some expenses you would need to calculate monthly or annual costs. Look at principal, interest, taxes and insurance (mortgage amt) payment. Your fix and variable costs will come out after your mortgage obligation is met; giving you your net operating income. Offer 30-50% of listing price for all three condos. Figure your capitalization rate; net income/price *.65 or 65%=cap rate(%)
"I will NOT BE BROKE! ANYMORE!"
In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
Thanks Atlcamel
I just spoke with the owner here's some more info.
price 300k, willing to carryback 20% if I get financing.
Units already have tenants and in the past three years the most anyone has been vacant is a month or so
Gross Is $4500 a month
Expenses 190 a month condo fee which includes heat, tax is 175 a month both per unit, so
190+175 = 365 * 3units = $1095
I'm going to round up to 1400/month to take into consideration any other issues.
240k first mortgage comes to about 1500 a month
60k second over 5 years is about 1200 a month
Plus the 1400 a month for expenses comes to $4100
So that is a $500 per month cash flow.
The problem is if one of the places goes vacant, I may not be able to cover the cost.
What are some ways to get the price down? I haven't really talked about the terms of the 2nd mortgage with the owner yet, so should I ask him for maybe a 10 yr length? I could then refi after I purchase the property and maybe be able to pay him back immediately.
The other 3 condos in the unit similar to these sold as a group 2 years ago for 550k
Any ideas, comments, suggestions?
You're going to have to go off an appraisal and whatever deficiencies (major) the property might have. You can't go off of 2 year old data. You got to find out what those condos are worth today. Do you have a partner or hard money lender that would mind partnering with you? Really crunch the numbers is all I can advise.
"I will NOT BE BROKE! ANYMORE!"
In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
From my experiences with my SFHs, in general 50% of rental income will be used up just by expenses. These include:
Taxes
Insurance
Management- generally 7% to 10% on SFHs (unless you do it yourself)
Vacancy Expense- find out what that is in your area and plug it in
Tenant caused maintenance issues- allow 5%
Utilities when vacant-(variable based on vacancy rate)
Marketing for tenants (if you do it yourself)
Unit turnover expenses- paint/carpet/damage
In general, your HOA dues will be on top of these expenses.
Of course in some cases you will have a tenant that is long term, or less maintenance hassle, but be prepared for the possibility that 50% may to go to expenses at least over the long term.
So the deal in question looks this way to me if you manage these yourself and do most of thw work yourself. The best vacancy rate I have seen was 5% so I will use it here
Gross Rent: $4500
Insurance: $65
Taxes: $425
HOA: $570
Vacancy: $225
Utilites: $15
Maintenance: $50
Marketing: $20
Unit Turn: $250
Expenses: $1830
Net Income: $2760
Payments: $2700
Cash Flow: $60
Your insurance cost will be low compared to SFHs, but should be more than offset by HOA fees.
In this case I recommend that you manage them yourself since 7% would be $315 and will make you cash flow negative. Make an offer that lets you cash flow based on a realistic view of expenses. I personally feel that even this estimate may be a bit too favorable, but close.
Just be careful not to put yourself in a negative cash flow position.
Regards,
Tony Tomasek