Ep 24 - Our 56 Unit Horror Story Part 2: The Numbers

Hey everybody. Flip and Danny here, founders of the Freedom Real Estate Group family of companies. And welcome to another episode of our.

Podcast called Freedom through Passive Income.

And this one, hopefully you watched part one. This is our 56 unit horror story, part two, DOS. So you're going to take over from here because this is where you've been doing a lot of this work on all the legwork on this.

Yeah, sure. So in the first one we talked about the story and we went fast. If you want to go back and actually hear the story in slower version, it's probably like 30 to 45 minutes long because we kind of go into the details. We'll make sure to stick a link somewhere maybe in the description so you can hear the whole story instead of a speedy version that we just did. So part two, we're talking about the numbers and the numbers as we see them right now because we're in the middle of a refinance and our rehab, I'm going to talk about that in a second. Is still ongoing in some ways. So let's just talk about that. So rehab on a multifamily property, or really on any real estate property is called capex. Whenever you hear somebody say capex, that means that they're talking about the rehab in general.

Things that capital expenditures.

Thank you. Thank you. It's the rehab in general in terms of the improvement of the property. Right. So if it's a leaky sink, that's a maintenance issue and you want to have that property management taken care of that and you want to have that in your property management accounting details. But something like we're still replacing windows as needed. We're replacing H VAC systems as needed. We didn't need to do all of that right up front when we are doing the original rehab. So we're just, it's, it's ongoing. So there's going to be expenses that are going to continue as we do all this. And so right now that's why I say these are estimated numbers. Okay. So yesterday as I was preparing for this episode, I looked at our financials from our property management company and I looked at a T3. T3 is a trailing three month expenses. Typically you're going to hear the words T12.12. Yes. Usually you want to see a trailing twelve months of expenses on a property in order to evaluate how it's performing. In this case, we've been rehabbing it this whole time. So it's only just started really performing where it should be in the last three months, which is why we're in the middle of a refinance out because that's what the bank wants to see as well. So for the T3 net operating income, which is our income minus our expenses, that's our net operating income. And this is how on multifamily you value a property, it is $94,000 in three months net operating income. So times that by four. So we can get an estimate of what it would perform for 12 months. That is 376,000 annual estimated net operating income. So that's the number.

That's a lot of cheddar.

That's right. That's the number we're going to use for this video as the estimate when we're running through numbers. So depending on the appraiser, they're going to take a look at other multifamily properties in this area and they're going to say, okay, what are these properties that are rehab similar, not, you know, an as is property compared to a rehab property, but what other rehab properties trading at are they trading at a 10 cap, a 7 cap, or anywhere in between? And that's how he's going to decide. He or she is going to decide how to value our particular property. So cap rates we're going to talk about in a different video. I know we don't have time to do all of the definitions, but so what I did is I took the range of 10, 9, 8, 7 cap. So if the appraiser values our property at a 10 cap, because that's where he feels things are trading at in that area, then the valuation is going to be $3.7 million. If he values it at a 7 cap, then it's going to be $5.4 million.

So that's a lot of cheddar.

That's a lot of cheddar. And that's a big difference. Right. So it's really, really important that you've got appraisers that know what they're doing so that you can actually get a proper valuation on a property.

And just to add to that, though, you had been talking to a local commercial broker.

Yes.

And he said everything's at seven.

Yes.

Everyone in the area, they're not trading.

Anything above seven right now. Yeah.

So at this point in the video, again, if you're watching on Facebook, LinkedIn, YouTube, TikTok, Instagram, whatever it is, if you have the ability Hulk smash that love button and the like button. Again, this helps the algorithm for our videos. So if you're driving, don't Hulk smash nothing, especially not the car in front of you, but again, if you're watching Hulk smash, hit that button. Give us some likes and loves. All right.

And thank you, Brian.

Yes.

Giving you this, giving us this fun idea how to make it more fun.

So back to the original date of purchase. So it was just a little bit over $23,000 a door. So times that. And we're right now we're just talking about the 48 unit. We're not talking about the other 8 unit. So this is the 48 unit. So that 23 times 48 is estimate.

1.1 million dollar purchase.

That's right. And so for our capex today, I took a look at QuickBooks, I took a look at our spreadsheets. I just used the highest number because I know that we're tracking differently based on, you know, what are we doing right now in terms of some Windows and some H vac systems that I know we're replacing. So I took the biggest number of them and it's 615,000 for the 48 units that we've spent so far. So far on capital expenditure improvements. So then the private money lender interest again, I estimated when I think that we're going to refinance, which I think is going to be probably middle of February, and if that comes true, then estimated interest on our private money loans is going to be $256,000. Do you know how much our private money lenders love us?

They love us.

So that's a lot of cheddar.

That is more right over to them. We just call this one the cheddar.

That's right. And that's huge. Right? That was a win for them. It's a win for us because we were able to buy these apartments because of them in two weeks because of them. Because we had a relationship and they love us and we pay well. So our all in with all of that information is $1.971,971,000, which is an estimated 2 million for the purposes of this episode. So our profit, that's where we're going. So if the appraiser says it's a 10 cap, we're going to profit based on these numbers and estimates $1.7 million. If he estimates it's a 7 cap, then we're going to profit an estimated $3.4 million.

Bam.

I don't care if it's 1.7 or 3.5.

Yeah, no, I'm cool with either one.

We won on that property.

Yes.

As scary as it was, and it was our very first one. Somebody in one of our masterminds goes, and that is what you want to what? That's why private money lenders, that's why people work with flippin Danny, is because it doesn't matter what they face. They do not give up. They take it in stride and they keep on going. And that's the type of people you want to invest with. That made me so proud when I heard that. Okay, our number episode is done.

All right, well, again, we like to try to keep these short and sweet. So we hope that you enjoyed this episode, the we the cheddar episode. But again, make sure you like love comment. Let us know how we're doing. Let us know if you have any recommendations, feedback. Yeah. Any questions, anything at all. So let us know. And again, we always like to end all these episodes with invest smart, live happy. Bye, everybody. Okay, Dani got really long winded on these episodes, so she wanted to let you know something.

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