Dale on the Daily

How A 29-Unit Deal Becomes 61 Units

• Dale Kerns • Season 1 • Episode 19

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0:00 | 43:00

We set a clear goal to buy an apartment complex and show how underwriting, occupancy gains, and smart refis can scale a portfolio fast. Three live deals reveal how to turn cap rates and NOI into cash flow, equity, and more units without selling.

• Using cap rate and price to back into NOI
• Comparing cap rate to debt cost to gauge day‑one cash flow
• Testing upside from occupancy increases before rent hikes
• Estimating expenses and debt service for cash‑on‑cash
• Refinance strategy to pull tax‑efficient cash
• Rolling proceeds into value‑add C‑class units
• Renovation budgets tied to proven rent lifts
• Compounding from 29 units to 61 and beyond

Subscribe to the channel if you’re interested in real estate investing specifically apartments multifamily apartments. Send me a message if you want to look at deals and talk about deals I’m more than happy


SPEAKER_01:

What's going on? We're back today. We're going to be going over some more properties and underwriting. And as I've talked before in previous videos, my goal this year is to buy an apartment complex. Um, we have been looking at properties for a while now, at least I have, and I've never done anything but uh want to make it a goal of mine this year to buy the apartment complex, go in with some partners and investors, and start the portfolio of having multiple units, an apartment building, and then growing that um over the next years into more properties, more units, and making everybody win um myself in our investment. So let's get going on looking at some properties. So we've been in like the 30 unit range, 16 to 30 units is where I'm looking at. So I have one today.

SPEAKER_00:

I'm gonna go a little bit out of that box. Um, just to show that myself and if you're watching, that it doesn't matter the price range, it doesn't matter the number of units, it all depends on the underwriting for that is all the same. So this one is um, so this is how many units? Okay, so this isn't as many units as I thought, but this is twenty-four units, and they are asking twenty five million dollars.

SPEAKER_01:

Okay, so that's what about a million dollars a unit, and they are saying the cap rate is seven point nine four percent.

SPEAKER_00:

So as I've shown in previous videos, if we have the asset price and we have the cap rate, then we can figure out the NOI and we could figure out if this is gonna work or not.

SPEAKER_01:

So twenty-five million times point zero seven nine four gives us an NOI of one point nine eight five. So this is telling me how much money they're making. So they're making about two million dollars a year income minus expenses, and that's what that number is.

SPEAKER_00:

So let's take this number. Let's say we're gonna need thirty percent down. Thirty percent is seven point five million.

SPEAKER_02:

So that leaves us at um seventeen and a half twenty five million minus something like that.

SPEAKER_00:

Seventeen and a half. Okay, we're gonna multiply that by point oh six five. So that's one million thirty seven. So our debt.

SPEAKER_01:

So to get our debt, we took this number minus our down payment, which is seventeen point five million divided by times.

SPEAKER_00:

Which is just a generic rate that I use for principal and interest payments. That's gonna get our debt, which is one one, three, seven, five hundred. So this does work. This leaves you about eight hundred thousand thousand, eight hundred, divided by seven and a half. This is uh so this equals ten point six percent. So this deal would work. The rents on these must be insane. Um this is down in Miami, Florida, so rents could be insane.

SPEAKER_02:

But let's see if it says what our income is.

SPEAKER_00:

So we just did the quick math and we know that. So they have a pro forma, which doesn't say what it's doing now, but so it looks like they're marketing this as like a condo hotel type deal, which I wouldn't do. It's like short-term rental stuff, but it doesn't say an income, but if 25 million and 7.94%, it pencils out. We get our NOI, we get our debt. Here's our cash on cash. Uh 10.6 percent with the debt. So as long as this number, your cap rate is above the percentage of what you're paying for the debt. So in this case, it was 6.5 percent. If this number is above that number, um it usually is a good deal. If it's below it, it's not to say that it's not a good deal, but the cash on cash and the actual percentage uh may be lower. So this isn't a bad deal on paper. We just have to give more in-depth on it. It looks like a um short-term rental condo type place. Um, let's take a look at this one. This is uh the units are I think this is twenty nine, twenty-nine units. Okay, this is twenty-nine units, six point three six capital. Twenty-nine units, six point three six percent cap. Okay, so off the bat I use a six and a half percent for my debt. So I know this is gonna be a little bit lower, probably of a cash flow deal. Um they are asking five point six million. Okay, so we're gonna do our so this is income, this is debt, this is expenses, and this is the cat on cash. So let's see, we can fill in um well, one of these, and we're gonna get our down, and we're gonna get our MI. Okay, so five six million times point two five, that's our down payment, one point four million is four point two million left over divided by point oh six five. Our debt is gonna be two hundred and seventy-three thousand. So if we take this purchase price times the cap rate, we're gonna know right away if this is a deal or not. Times point zero six three six three fifty-six NOI. So that's uh eighty thousand left over eighty thousand. We're gonna take the eighty thousand, which is the NOI minus the debt eighty thousand divided by our down payment, it's five point seven percent. Now, this is lower because this cap rate is less than our debt number, six and a half percent. Or it could be that the expenses are um too high, the income is not enough, maybe it's not full. Yep, occupancy is 83 percent. So you get the occupancy out, you can bring this NOI out, and this number goes up automatically without any additional expenses. Let's uh see what the income is. Now, once you find out if you like this deal, then you gotta figure out is the location good? Do you like the location? Do you like the property? Okay, because you're gonna have this thing, you're gonna have this thing for a long time. At least I plan on having it for a long time.

SPEAKER_01:

I don't want to buy them up the rents and flip it into something else. I mean, that would be great.

SPEAKER_00:

What I'd love to do is refinance it, take money out of it, still own it, keep it, and then use that money to buy other properties. Is what I really want to do. I don't want to sell them as long as they're cash flowing, unless the offer is just so good that it makes sense to do it. Uh looking for the income. These units look updated. Um, this is in Florida. So we know the weather's probably good.

SPEAKER_02:

I hate how they keep this all the way down.

SPEAKER_00:

All right, so they have so they have total expenses at two twenty-eight. Let's say two twenty-nine. Our debt or I mean our NOI is three fifty six.

SPEAKER_01:

Um so that means the income is effective gross income five eighty-four.

SPEAKER_00:

So let's just do some quick math.

SPEAKER_02:

Five eighty-four divided by twenty-nine.

SPEAKER_00:

Oops, divided by twelve, divided by twenty-nine, sixteen hundred. So rents are pretty decent. Um, so here's the income, here's the expenses, here's our NOI. We get our debt, cash on cash, eighty thousand for five point seven percent. So let's say this is an eighty, so they're eighty-three percent times. So five units. So let's give say they're getting fifteen hundred dollars a unit. Is ninety thousand. So let's say this is six seventy-four. Okay, this would be at eighty-three percent occupancy, and this is at a hundred percent. So let's say we got it to a hundred percent. Okay, this is our new income. Let's say our expenses do go up. Let's say five units, let's say it goes to a thousand dollars a year. Uh let's say it goes to um two twenty-nine plus five thousand. Let's say it's let's say this goes up to two thirty-five. Okay. Which it could electricity, trash, repairs, who knows? So six seventy-four minus two thirty-five. So that's an NOI of four thirty-nine minus our debt two seventy-three. This doubles divided by one four, eleven point eight. This is what you're looking for a value add. They're at eighty percent occupancy to get to a hundred percent, you get eighty thousand more in NOI, your expenses go up a little bit, I'm sorry, in income, your NOI goes up eighty thousand, but your cash on cash return doubles. Now, if you hold now at so that if you increased occupancy, not even increased rents, so you're fifteen hundred times five times twelve, ninety thousand, divided by their cap rate, point oh six three six, one point four. You added one point four of value by getting this to a hundred percent occupancy. So let's say you got it to a hundred percent occupancy. Okay, and you went to the bank and said, Look, here's my new NOI. So four thirty-nine divided by point zero six three six is six point nine. So about a million three. So now you have a six point nine million property. So you go, this is what I was talking about. Instead of selling it, go to the bank and refund it.

SPEAKER_01:

So if you increase this then a lot, get it fully occupied. I can go back to the bank and say, look, I've got six point nine million.

SPEAKER_00:

So what do we know? Um five six minus one point four. So a million would be four six, so four two. So we owe four point two million. This is what's exciting about about real estate, especially these multifamily deals.

SPEAKER_01:

So we owe 4.2 million. So now we go to the bank, and now we owe 6.9 is our new value based on the new NOI by getting it to a hundred percent occupancy.

SPEAKER_00:

Okay, times.75. Okay, so now we go get a new lemon for uh five million instead of the four point two times point seven five equals minus the four two. Nine hundred and seventy-five dollars. So we get a new loan for six nine. We put our money down, pay some fees. Now we get a loan for six. million we owe four two we pay this off we got nine hundred and seventy five thousand dollars left now we take this money go get another deal we still know this deal that now our debt is gonna change so let's say five one five hundred times point oh six five so now our debt is three thirty four but we're still making four thirty nothing so we still now we make a hundred thousand but we're still making more at 80 percent this drops but now we got a million dollars tax free because it's debt we're not selling the property we take this we go buy another property we're still making the hundred thousand dollars and we still own the property and we did not raise rents all we did was get it from 83% to 100% occupants this is actually a pretty good deal especially if you can get it to eighty a hundred percent so they're saying on this um there's an assumable loan let's see what that says uh loan amount for years so in six years you'd have to refi the loan because they they're saying that's what's owed on it um they don't say the amount though anyway it's pretty close to what we said 42 at six and a half percent they're saying six point three six percent so this is pretty close this number still making money at 83 percent this is a good deal I'm gonna save this one um so yeah this is this is how you really make money this is why this is exciting for me is 29 units five six million a 6.3 cap here's our NOI is 356 and that's an 83 occupancy I'm gonna double check that but let's assume it is because that's what they're saying the current numbers are and that in the occupancy so if you can get it to 100% occupancy you increase the value um to 6.9 you increase your NOI you increase your cash flow and your percentage then you go to the bank you refinance it you take a billion dollars out of it you reduce your cash flow a little bit increase your debt but your NOI stays the same and if you increase rents that's even more money so this is what's great because you can still own it take money out of it go buy something else this million dollars can get us another down payment a milk and four for for five point six million dollars so if it's three million dollars for three or four yeah three million dollars we can probably get a down payment 30 to 25 percent we can get a three or four million dollar property with this 975 that's another 20 to 30 units from what we've been um looking at so far here's one 32 unit look at this one as well now we have nine hundred and seventy five thousand dollars let's see and we are gonna take that money we are gonna go get another property let's see what we can buy so we have uh we have nine hundred and seventy five thousand dollars we have twenty nine units okay um and we have a hundred thousand well we have yes a hundred thousand in cash flow and we have a property worth six point nine million dollars twenty nine units and we haven't even raised the rents okay so now we're gonna talk about another property let's see this one this is um they are asking it's thirty two units they are asking two eight seven five so right off the bat we know that these rents are a lot smaller than what we were dealing with on that last property if this asking price is this for 32 units so based on that we know the rents are lower it's possibly in a lower income area or an area that's not um as good a different part of town where it's not as good and now could be less expensive not as much market uh rent um this is saying it's C class which makes sense based on the price and the units uh this one over here was an A class so they're saying the cap rate is uh six percent okay so two eight seven five times oh six is one seventy two so our purchase price of two eight seven five six percent of one seventy two five hundred so let's say we put down twenty five percent so our debt debt debt is gonna be one hundred forty one fifty six thirty two thousand cash on cash um it's about a four point two percent so this is a good unit deal with a lower price so we know the income's lower it's a C class property it's not in the best area which is gonna make our margin smaller the cap rate here is less than our point oh six five percent debt number which is gonna make this smaller so the more deals you look at you are gonna know these things right off the bat when just looking at the couple pieces of information occupancy it does not say so it's saying the value add is to renovate units and increase rents doesn't sound like the prior owner has done that um the current average rent is seven forty five plus sixty dollars so let's call it eight hundred bucks okay but they're saying they can get so right now they're getting thirty two times eight hundred twenty five times twelve so the income is three hundred seven so let's say um times point let's say three so thirty percent down on this is eight hundred and sixty two thousand we have nine hundred and seventy five so that is plenty of money to put down on this okay and let's say so we have let's say a hundred thousand left a hundred thousand divided by thirty two is three thousand dollars so let's say we took our nine seventy five we put down payment of 30% on this and we rent have spent three thousand dollars and renovated each unit so let's say we can get rent uh they say a pro form of rent is 11 say$1200 so let's say we can get twelve hundred dollars of rent by renovating all the units putting our money down okay so if they're saying this is their income three oh seven uh three oh seven minus one hundred seventy two so expenses are about one thirty four divided by so okay so this is about forty percent of their income which I would do it by that so let's say we got the rents to twelve hundred dollars times thirty two times twelve that would be four sixty okay it's a hundred and sixty thousand dollars more of of income minus our expenses now our NOI increases to three hundred and twenty six minus our debt this is a hundred and eighty five thousand divided by the seven well divided by nine seventy five nineteen percent so this debt actually is gonna be higher because I did it based on twenty five percent so let's do um uh two eight seven five minus eight hundred and fifty thousand is twenty two thousand twenty five divided by point oh six five actually they go down sorry we we're putting more down so let's keep it at that so if we took our nine seventy five we put eight fifty down we spent the extra money to renovate these 32 units okay that would increase our income to 460 because now we're getting 1200 instead of 800 our NOI goes up to 326 and our cash on cash at 180 bucks so let's see what do we have now so now now we don't have any money but now we have uh 29 plus 32 3030 is sixty sixty one units and we have one eighty five two hundred and eighty five thousand in cash flow now you do this again. So you bought it at this price in this NOI. Now our income is four sixty times oh six sorry divided by point oh six seven point six Okay so now we got a property worth seven six This is the real magic of of this. Now what do we got two thousand twenty two million?

SPEAKER_01:

Now we do seventy six times three let's just say whoops seven six times seven is five point three minus two twenty five now we take out three two nine five so this is cash okay now our debt is gonna go up a little bit seven six times seven times oh six five our debt goes up to three forty five but we're still getting four sixty so we're it's a hundred and twenty thousand so this goes down to one twenty so now we have so this goes to one twenty so it'll be two hundred and twenty thousand dollars the cash flow and instead of nine seventy five now we have three point two nine five what kind of deal can we get for this times three nine million now we're buying a nine million dollar property not a two eight seven five so now you're talking 100 units 80 units so now 61 gets a 160 real quick that's the play on this deal so that initial what was it 750 I think to put down it's turned into 3.2 now you paid all your investors back so all the money that we put in pay them all back nobody's in any deals for any money take our 975 and the 750 so let's say two million dollars you still got 1.2 million dollars in the bank and nobody's in the deals with any money and your cash flow 220 this is a great deal so this is how to use the cap rate to find out what your NOI is and then use the NOI to find out what your purchase price is if you can increase NOI you're gonna increase the value of the property and as you do that that's how you pull cash out buy other deals and just keep stacking and stacking and stacking on top of each other now the units one to four units and the single families you can't do this the same way because that's based on comparable properties because these are five and up commercial units you the values are affected by the income it's like a business the more NOI net operating income that you make the more valuable business is going to be that's all these bigger properties are they're they're just businesses and if you increase the income expenses even if they go up they're not gonna go up as fast as the income or they shouldn't hopefully you increase your NOI you increase the value of the property then you can go to the bank refinance it don't sell it still pull money out and then go buy other assets this is a good deal as always I'm looking at deals all the time I review them on this um videos in these this channel once a week and just throw them up on YouTube so take a look there subscribe to the channel if you're interested in real estate investing specifically apartments multifamily apartments I'm gonna be buying a deal this year if you want to look at a deal that you have or you're interested in getting involved and going over deals be happy to talk to you I love talking about this stuff and reviewing deals and looking at them and looking at the numbers and then hopefully finding one that works getting some investors in and buying properties and starting the portfolio thanks for watching the video subscribe send me a message if you want to look at deals and talk about deals I'm more than happy