Multi Family Financial Analysis: would you add back some of this to NOI? It seems exorbitant. I’d say $300K NOI is a reasonable conclusion.
[{"id": "efm2s6y", "text": "You should have a ten year cash flow with capital replacement requirements as capex in those years, based on a building condition report.\n\nObviously (?) general maintenance goes above the line and should not be added to NOI. ", "replies": [], "depth": 1}, {"id": "efm2ufz", "text": "Could you clarify what you are asking? Also, I think it would benefit to separate the expenses between operating and capital, then subtract operating expenses from effective gross revenue", "replies": [], "depth": 1}, {"id": "efm4vdr", "text": "I'd add everything back except for General Maintenance, although if those are recurring expenses due to turnover (particularly paint) you should include them. \n\nYou could also potentially add in depreciation below the line", "replies": [{"id": "efma0bs", "text": "Any reason why you would add depreciation? ", "replies": [{"id": "efmarjg", "text": "Taxes", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "efmclq6", "text": "Maybe maybe not.  It depends if those cap ex items are one off events or an ongoing thing.\n\nAsk the seller/broker about those particular line items.\n\nI like to over leverage on the purchase, in order to address those types of things at the start of my ownership and not deal with them year after year.  More pain upfront but the cash flows look way better to the next prospective buyer, if I decide to sell.", "replies": [{"id": "efmeho4", "text": "That third paragraph of yours is interesting. Personally I\u2019d rather refi after 5 or 10 and THEN put the money in to reposition for sale, rather than have 5 or 10 year old capital improvements that may not have any warranty left etc. Last couple years before sale seems a better time to spend money in my opinion?\n\nThough I guess the counterpoint to this is if the capex is needed from a safety or operational efficiency (expense reduction) or rent boosting perspective, just go ahead and spend early. ", "replies": [{"id": "efmgqh7", "text": "I like to be ready for resale or refinance, as soon as humanly possible.  Also those $1k problems tend to morph into $10k problems pretty quickly if you try to band aid them for too long (and believe me, I love pushing off cap ex as long as possible).  Plus putting large cap ex into the initial loan feels like your spending the bank\u2019s money, whereas using refi money feels like I\u2019m spending my money. ", "replies": [{"id": "efmxx4n", "text": "Interesting. Thanks for sharing. I see your point ", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "efmd6z7", "text": "If you plan reserves for replacement, calculate the cost to replace flooring, mechanicals, roof, plumbing fixtures, etc. divided by their individual economic lives. That will give you an approximate estimate of the annual costs. \n\nOtherwise you\u2019d have to see a multi-year history. How much do they spend on painting every year? Was this a one-time exp or do they paint each unit upon turnover? Same with carpeting/wood floors; did they replace flooring in halls or is this a typical annual expense?", "replies": [], "depth": 1}, {"id": "efo6mt2", "text": "As a banker, you need to convince me why those should be excluded. If its a justifiable like one time expenses, then I would not mind excluding it. But you would not believe the things I see regularly- like recurring expenses being presented as a one time expense, payroll and management being cut conveniently before refinancing so that the expenses seem a lot lower than they are, etc. ", "replies": [], "depth": 1}, {"id": "efvje3d", "text": "Move it below the line. It\u2019s capx ", "replies": [], "depth": 1}]