Rock Bottom Blueprint Apartment Complex Blueprint

If you are reading this Rock Bottom Blueprint article, then I know that you are interested in commercial real estate, particularly buying apartments.  So let me start out by saying this.  The formula and information we discuss today is so you can make quick, on-the-go calculations when evaluating apartments.  The on-the-spot projection with pen and paper is remarkably accurate and will impress even the most sophisticated clientele.  However, I do warn you that this is just a ball park guestimation and sophisticated software will need to be used to get a more definite look.

Real estate investors, especially those in training, can’t afford to go into something blind.  Time wasted is money lost and we all know how we can never get that time back.  As an investor, if we know the minimum return that we need to go into a property, we can figure out the maximum buy price for that facility based on our return needs and our loan information.  Below I will show you a formula a mentor name Dutch Mendenhall showed me over two years ago that I use in my business today.

But before we go there, I want to remind you that I have a bonus for you at this end of this article that will give you a blueprint to buying apartment complexes.  That is my way of saying thank you for taking time out to read and review my article.

Sample #1:

Commercial Investor:  Joe

Return Needed:  11%

LTV:  80%

Money Down:  20%

Interest Rate Loan:  7.99%

So above we have the information we are working with.  As stated above, we have the requested return amount as well as the loan information.  Now we must crunch numbers

Rock Bottom Formula to Calculate Investor Returns on the Fly

1.     Add the mortgage numbers to the equity numbers (in decimal format) and come up with your cap rate.

Mtg Info:

LTV x Mortgage Constant

Go here for the mortgage constant:

http://www.columnfinancial.com/MyColumn/tools/calculators.aspx?pn=mortgageterm

 

7.99%  yields .08797

Equity:

Money down in percentage x the return you want in percentage

2.       Mortgage:  80% (.80) x (.08797) = .070376

3.       Equity:  20% (.20) x 11% (.11) = .02

4.       (.02) + (.070376) = .090376 or 9.0376 CAP

The calculation above gives us a “Derived” CAP rate is 9.0376 for a 11% return.

The subject apartment complex we want has an NOI of $150,000.

5.       150,000 / .090376 = $1,661,130

Our buy price for this complex would be $1,661,130 or under

So essentially, if we wanted an 11% cash on cash return we would need to purchase this property at the price above with all other things constant.  When I run this same scenario through my professional evaluation software, I get a value of 13%.  So the software tells me that the above scenario would give me a cash-on-cash return of 13%.  Yes, two percent better than our pencil and paper evaluation which means you could actually pay a bit more and still get your 11% return.  Like I said, this is just a ball park equation you can use on the fly if needed.  It works really well on the unsophisticated, and even goes over the heads of most of the super sophisticated.  Now you can take this information and go to Rock Bottom Blueprint to check out our Rock Bottom Apartment Complex Blueprint which will skyrocket your investor training.

Until next time,

Randy Rider

Rock Bottom Blueprint Apartment Complex Blueprint