new opportunities in public housing 4 amoroso
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Where to look for Bank REOs
http://bankofamerica.reo.com/search/propertysearch.aspx
https://www.citimortgage.com/Mortgage/Oreo/SearchListing.do
http://mortgage.chase.com/pages/other/co_properties_landing.jsp
Top real estate brokerage firms bid to be the listing agent to remarket bank owned properties
Some banks direct sell All bank websites have basic information and contact Other websites have general info on some bank owned assets such
as Loopnet, and broker controlled websites
What are the issues to consider on an REO?
Existing asset value is determined by trailing 3 or 12 month NOI (from a lender perspective to acquire debt and finance) less debt available to acquire because performance is below market
Many buyers are using double digit cap rates for NOI analysis due economy eroding values
Concessions on rent almost always devalue income stream
Include reserves above the line when determining value
Trend Analysis – what is it worth?
Cap Rate Analysis
Acquisition Cap Rate
Going In Purchase Price XXXXXXXX
Trailing 12 months Cash Flow Income – expenses and reserves
Trailing 12 months NOI Income- Expense
Cap Rate on Trailing 12 mos. Cash Flow Trailing 12 / purchase price
Cap Rate on Trailing 12 mos. NOI
Cash flow on trailing 12 / purchase price
Stabilized Valuation
Year 3 (2011) Cash Flow -projected Cash flow at stabilization Y 3
Year 3 (2011) NOI - projected Project NOI
Sale Cap Rate used in Model Cap Rate determined by market
Year 3 (2011) proj. value on cash flow Projected Cash flow / cap rate
Year 3 (2011) proj. value on NOI Projected NOI / cap rate
Value to Project Investment Projected NOI / Total Investment
Trend Analysis – what is it worth?
Cap Rate Analysis
Acquisition Cap Rate
Going In Purchase Price $22,500,000
Trailing 12 months Cash Flow $779,763
Trailing 12 months NOI $919,763
Cap Rate on Trailing 12 mos. Cash Flow 3.47%
Cap Rate on Trailing 12 mos. NOI 4.09%
Stabilized Valuation
Year 3 (2011) Cash Flow -projected $2,606,220
Year 3 (2011) NOI - projected $2,746,220
Sale Cap Rate used in Model 8.00%
Year 3 (2011) proj. value on cash flow $32,577,750
Year 3 (2011) proj. value on NOI $34,327,750
Value to Project Investment 104.6%
Conclusions to REO acquisition
• Must have access to debt• Debt underwriting more stringent than typical –
less debt available• Must have access to equity***• Economy has changed all of the rules!• If you can buy right on an REO – great
opportunity!