Example: Analyzing a properties potential

When you have selected a potential property to syndicate you will need to analyze the properties information to see if it will meet your goals. For this example we will use a real building with actual facts. The names and city have been changed. The property is in a good location and is in reasonably good repair. The actual asking price is $700,000 We will use a a purchase cost of $650,000 for our example. The lower price is do to the parking lot and other deferred maintenance and the short term leases.

5,800 SQ. FT. ONE AND A HALF STORY OFFICE BUILDING

3419 BRICKMORE ST

LOCATE, TEXAS

LAND: 100 ' frontage by 170 deep with additional 80 x 100 rear parking lot. Close to military base

located on a secondary street. Cell Tower on rear parking lot.

BUILDING: 3,900 sq ft down stairs, 1,900 upstairs, upstairs has separate entrance and one bathroom, separate A/C. Down stairs has front and rear entrance, access to upstairs, age approximately 28 years.

Covered parking for twelve cars, good landscaping, fair parking lot condition. Building in good repair.

Wood framed construction with brick exterior, flat roof design, roof mounted A/C units.

PRICE: $700,000.00

INCOME: $96,960

NET INCOME: $57,690

FINANCING: Conventional with 25% down. Amount financed $488,000. At a 7.0% interest rate on a 20 year amortization the payment is $3,783 per month $45,396 annually.

NET CASH: $12,294

Rent Roll (monthly)

HBS 1200 sf $1,150.

HBS 200 sf $275.

HBS 144 sf $225.
XET 578 sf $750.

IMP 110 sf $250.

GDO 1900 sf $3,000.

GDO 700sf $950.

BHQ 100 sf $200.

Vacant 200 sf $250.

Cell Tower $1,030.
_________________

Total $8,080.

Annual $96,960.

Vacancy - $4,840.
_________________

Income $92,120.

Expenses:

Elect $4,500.

Water $600.

Repairs $1,200.

Cleaning $4,100.

Landscape $900.

Supplies $400.

Insurance $3,000.

Adv. $300.

Trash $1,630.
Mgmt $4,600.

Taxes $13,500.
________________

Total $34,430

Net income: $57,690

Value:

10% cap rate value $ 580,000

9% cap rate value $ 650,000

8% cap rate value $ 700,000

Financing:

Price $650,000

Down $162,000

At 6.5% for 20 years the payment is $3,638 per month $43,650 annually

At 7.0% for 20 years the payment is $3,783 per month $45,396 annually

At a purchase price of $650,000 and a $57.690 net income the building has a 9% return. Reduce expenses and the cash flow can improve.

1. The spendable cash flow is $12,294. (net income $57,690 less - $45,396 payments = $12,294)

2. The spendable cash flow return on the $165,000 down payment is 7% ($12,294 divided by $165,000).

3. Equity build up of about $950 per month from paying down the mortgage will add to the return.

   Total return with mortgage equity reduction is 14% ($12,294 net spendable plus $11,400 mortgage reduction divided by $165,000 cash invested =14% return)

4. Resurfacing the parking lot and replacing the carpets as tenets move then increase the rents 10% is a good possibility.

5. The cell tower lease is fifteen years and has a cash value of $100,000 for the income stream. The lease payments increases 3% per year.

6. One tenet makes up half the income and they are on a one year term as they are a government contractor on annual renewal year contract with the government. They have been a tenet for three years and increased their space this year.

   Conclusion: With an additional investment of $20,000 to $30,000 to resurface the parking and other improvements, a reduction of expenses, and a increase in rent rates of 5% to 10% this property could return 16% to 20% a year on cash invested.