Summary
Highlights
The video introduces a 17-unit multi-family deal from a coaching client, emphasizing the use of a simplified deal analyzer. The property is listed at $950,000, with an assumption of a 30% down payment. The analysis bases financing on traditional bank loans despite potential seller financing, using a 25-year amortization schedule, which can result in higher debt service if a 20-year amortization is forced by lenders. Closing costs are estimated at 3% for banks and credit unions.
The video outlines basic underwriting assumptions: an 8.5% cap rate for the market, 5% vacancy (even for fully occupied properties), 5% property management fee (even for self-managed properties), and 2% for repairs and maintenance with a 2-3% year-over-year growth. Tax increases in Michigan are capped at 5% annually after un-capping upon sale. The rent roll shows potential for significant rent increases, especially for studios and one-bedroom units, highlighting the affordability of the Midwest for investors.
The video dives into income opportunities, noting significant potential for improvement from current income ($126,000) to market rate ($174,000), including missed opportunities like utility reimbursement via the RUBS system. A detailed examination of expenses reveals several red flags in the seller's financials, such as unrealistically low lawn care costs ($100 per year) and unnecessary expenses like computer/telephone services for a 17-unit property. There are also miscategorized expenses, like HVAC repair being listed as R&M instead of CapEx, which falsely reduces the Net Operating Income (NOI).
The miscategorized expenses significantly reduce the property's valuation by making the NOI appear lower than it should be. The calculated as-is value of the property is $415,000, substantially lower than the asking price of $950,000. The presenter advises against the deal at the current asking price, as it would reward the seller for underperforming management. The presence of seller financing also suggests the property may not be financeable through traditional lenders.
The presenter concludes that the deal is not attractive at $950,000, even if it could eventually be worth $1.38 million after significant work. He suggests an offer closer to $600,000. He emphasizes the importance of educated underwriting and encourages viewers to use the provided deal analyzer tool, which is available at a discount with a special code, for mastering underwriting skills.