$1.2M Apt, $80K Income

**PEERless** · Sep 3rd, 2008, 06:15 PM

HELP!!! My grandma owns an apartment building and wants to liquidate her estate. She would prefer to keep the property in the family, but nobody else has the mindset to be interested. I DO NOT have the money, but I do have the desire. Can this work?

Asking Price: $1,200,000
Annual Income: $60,000 (after expenses), 5%ROI

Oversimplified analysis: If I could borrow the money at less than 5%APR, it would buy itself.

I know I'm reaching on this one, guys, but if anyone can do it; it's the people of FastLaneToMillions!

**kurtyordy** · Sep 3rd, 2008, 08:43 PM

quick computation just based on the limited info, I would not pay more than600k.

what is driving the 1.2 mil price?

where are the rents in relation to the market?

will she finance?

**imirza** · Sep 3rd, 2008, 09:20 PM

What is the Net Operating Income NOI ( gross income minus operating expenses) ?

What are the CAP rates for similar properties in the area ?

I would take the NOI and divide it by the CAP rate to get the value of the property and based on that I can decide if its a good buy or not.

**hatterasguy** · Sep 3rd, 2008, 09:21 PM

It seems to expensive for starters.

But either way does Grandma need the money now, or could you give her say $100k up front and make payments? IE owner financing.

**PEERless** · Sep 4th, 2008, 04:09 PM

I will get these numbers from her.

The trick is, I don't want to low-ball or screw her out of her estate. I'll offer what's fair (once I find out what that is).

My primary concern is, how do I come up with the money so that she can get paid her lump sum today and I can keep it in the family?

**PEERless** · Sep 4th, 2008, 08:03 PM

NOI is $60,000, so the cap rate is 5%. Is that bad?

**kurtyordy** · Sep 4th, 2008, 08:16 PM

Originally Posted by PEERless

NOI is $60,000, so the cap rate is 5%. Is that bad?

IMHO, it sucks. I like min 10%, some people settle for less. If there is a high upside on the rents, then maybe, but if the rents are at market, this deal blows.

**AroundTheWorld** · Sep 4th, 2008, 08:18 PM

Originally Posted by PEERless

NOI is $60,000, so the cap rate is 5%. Is that bad?

Look around.

Come back here and tell us what you find out about the industry!

**PEERless** · Sep 4th, 2008, 08:46 PM

OK, so the price is too high for the CAP. Let me worry about that. My main question was...

Originally Posted by PEERless

I DO NOT have the money, but I do have the desire. Can this work?

Where do I come up with a cheap $1.2M? Or $1M? Or $500K? I'm just looking for creative financing suggestions. I should have clarified.

**hatterasguy** · Sep 4th, 2008, 08:47 PM

Well it could be good or bad, it depends on a lot of things really. You need to look around and make an educated decision on that.

IMHO it sounds kind of low, but for that property in that area it might not be.

As for financing it, does she really need the entire chunk up front? Say you guys agree on $1m. Could you say get a hard money line for $700k, and pay her the other $300k over XX number of years. Or bring in a partner to go 50% on it. She ain't going to spend the money, even if you have to pay her 10%+ interest on it for awhile. If she is going to let it rot in a CD or the bank you can give her a better return. Stock market might be able to beat that though.

You kind of want some blood in it to keep control, if you can't get her to hold some back I don't know how else to buy it with none of your money. A partner won't really need or want you, since you bring nothing to the table. Other than maybe experiance running it, but thats not worth 50%. A hard money lender is going to require that you have some blood in the deal, so you won't walk and leave them hanging.

**PEERless** · Sep 4th, 2008, 09:00 PM

^Thanks for the thoughtful response and creative idea. I'll see if I can do something like that. Thanks also for the dose of reality regarding the fact that I'm not a very attractive partner, LOL!

**hatterasguy** · Sep 4th, 2008, 09:06 PM

Well it sucks, but I had my uncle and another big devloper say the same thing to me. lol.

They are like you have no money and no experiance, why would I want to partner with you? What will you do for me? The answer for me was I found a deal and some money. You have a potential deal, and if the deal is sound the money really isn't all that hard to get.

Its quit doable, don't think for a minute its not. But like all potential deals a few things have to click for it to work.

**PEERless** · Sep 4th, 2008, 09:44 PM

Yeah, I want more than a finder's fee on this one. I want to keep my grandma's apartment in the family. Thanks for understanding.

**kwerner** · Sep 4th, 2008, 10:46 PM

Originally Posted by PEERless

I want to keep my grandma's apartment in the family.

Why is this, may I ask?

Is your grandmother an apartment afficionado - did she originally purchase it because she absolutelys love the way the apartment building looks, as if the architecture of the building were a priceless work of art, and just had to have it - therefore holding sentimental value?

Or did she originally purchase it as an INVESTMENT - a vehicle to secure her golden years with a comfortable living?

If she purchased it for the latter reason, than I would say that she was successful in doing so, and the price that she may fetch for it will certainly get her through her golden years comfortably, and she should be congratulated for making such a wise purchase decision.

But now the question comes back to you - if in fact it turns out to be a little overpriced, does it make sense for YOU to purchase it as an investment? Or do you think you could find a better value investment, with a higher ROI, that will work for YOU?

With all due respect, I'm not one for buying into something just because it worked for someone else at one time, but that might just be me...

**PEERless** · Sep 4th, 2008, 10:53 PM

Yeah, maybe it's sentimentality. Maybe it's synergy -- giving her $1.2M and giving me a $1.2M property and giving someone else some interest. Maybe it's sh--ty idea...

**White8** · Sep 4th, 2008, 11:01 PM

Originally Posted by PEERless

HELP!!! My grandma owns an apartment building and wants to liquidate her estate.

Take grandma to her CPA and let him tell her what the IRS is going to do to her if she takes a cash out on $1.2m no matter where it comes from. Her only good choice other than a 1031 is to carry a note unless she doesn't care about the tax implications. It would also give her a steady monthly income for the rest of her days.

**PEERless** · Sep 4th, 2008, 11:09 PM

Heh. She got here by 1031-ing all the way up from her first $300 REI property! I think she wants to have cash for her heirs, instead of feud-starting indivisible property.

**I85** · Sep 4th, 2008, 11:30 PM

Originally Posted by PEERless

Heh. She got here by 1031-ing all the way up from her first $300 REI property! I think she wants to have cash for her heirs, instead of feud-starting indivisible property.

I assume you are doing this because you want it to turn into a good investment...correct? What happens if you do end up doing well on the deal....half the family says you screwed them out of their share..."because it must have been worth more than you paid, if you made money".
Or it tanks and you lose everything. Either way, it is not something I would ever consider.
Lose/Lose if you ask me

.

Originally Posted by PEERless

The trick is, I don't want to low-ball or screw her out of her estate. I'll offer what's fair (once I find out what that is).

This is going to taking a lot of creativity. You want to pay full market value, have someone else finance the deal, and put nothing down. It just doesn't seem too realistic to me. (especially if the 5% cap is anywhere near accurate).

Originally Posted by PEERless

NOI is $60,000, so the cap rate is 5%. Is that bad?

Around here? Definitely! Where you are...no clue.

If I were you I would help try to get it sold and leave it at that. I wouldn't mix the blood and money.

On a side note, was the 80k in the title a typo...or are you saying expenses only run 25%?

**SteveO** · Sep 4th, 2008, 11:44 PM

Has she looked into a cash out refi? This way she could leverage it out to the max and then give you a note for the remainder. Please see a tax attorney and your accountant to figure out how to accomplish this one.

Perhaps her estate planner could give you some ideas and guidance as well. Seems like there is a strong likelyhood that capital gains tax will be going up. There is more to cashing this baby out than meets the eye. It would be time to recapture all the depreciation. Ouch!!!

**PEERless** · Sep 4th, 2008, 11:54 PM

Seems like y'all are saying the same stuff. I won't do it.

Originally Posted by I85

was the 80k in the title a typo...or are you saying expenses only run 25%?

Seems like $80K was gross, $60K after expenses (incl. management.)

Originally Posted by SteveO

Has she looked into a cash out refi? This way she could leverage it out to the max and then give you a note for the remainder. Please see a tax attorney and your accountant to figure out how to accomplish this one.

Perhaps her estate planner could give you some ideas and guidance as well. Seems like there is a strong likelyhood that capital gains tax will be going up. There is more to cashing this baby out than meets the eye. It would be time to recapture all the depreciation. Ouch!!!

GOOD Thoughts. Thanks!

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