Making Multifamily Money - Nov 5th 2024

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I am hosting a live Q&A on 11/6 @ 7 pm PST within the Skool community.

Real Estate Updates

My 20 unit property manager brought me 3 off market deals in Oklahoma. She manages 3 apartments for the seller (18 unit, 14 unit, and 5 unit) all owned FREE AND CLEAR.

What does this mean? CREATIVE FINANCING (i.e - seller financing or seller becomes the bank). The seller is fixated on a price (44k/door) which is a great leverage point. I can give you your price of around $800,000 if you give me my terms.

My terms would be 10% down spread out over 4 years so 2.5% every year for 4 years. This will help minimize the capital gains tax. I would probably initially start off with 5% interest only payments for monthly payment of $3000/month.

If creative financing isn’t an option then I would have to value the property at NOI divided by market CAP rate. The T-12 didn’t factor in property tax (about $8k) and insurance (another $8k). If those are factored in, the NOI is 58k. The market cap rate (based on my 20 unit appraisal report which is 2 miles away) is 10.

Why is the market at 10 CAP? Since the interest rate is 8% for multifamily, the CAP rate usually has to be higher than the interest rate.

Based on the above, the Value = $58,000/0.1 = $580,000 so about $600,000 offer price. Assuming 25% down, loan is $450,000, interest rate 7.5%, amortized over 30 years, the monthly payment is approximately $3,100/month.

I presented the seller with 2 offers. One at $800,000 (seller’s price), but with seller financing terms. One at $600,000 (NOI/CAP Rate value) if the seller wants me to use a traditional bank.

Based on the monthly NOI of $4,800/month - debt service of around $3,000/month, the cash flow would be $1,800/month.

Let’s see how the seller responds to both my offers.

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