Houston Apartment - 29 units

[Chris Bounds]

Ok BPers. I said in a post a while back I'd post the numbers on a small apartment complex that I am pursuing. Here they are. Comments are welcome:

Purchase Price: $325,000
Units: 29
Mix: all one bed/bath (one efficiency)
Structure: 2 two-story buildings
Current rent: $500
Vacancy: 45% (16 vacant units)
GOI: $95k
NOI: $37k (seller's info)

My estimated repairs:
Interior (vacant units): $80,000 - mostly cosmetic with new appliances and window A/C units.
Exterior: TBD (new balcony railing $8000 + updated electrical (units have gas stove hookups currently), siding repair, and paint, possible dry wood termite treatment)

Potential 1 year outlook:
Vacancy: 11% (conservative)
Rent: $550 ($450 for efficiency)
NOI: $169k
GOI: $59.7k

The only two pending snags for me on this deal are: cost for termite treatment and cost for electrical upgrading. The termite issue is the big one for me. I hear fumigation is not cheap. Also, I'd have to vacate one building to treat it. That means either they have to move out or I have to renovate units for them to move into first - which means more upfront cost. The occupied units all need work ($60k estimated), but I had planned on doing them progressively after filling the vacant units. Even still this seems like a heck of a deal, but with my funds it could be a deal breaker - unless the seller is open to renegotiating.

Comments, suggestions, advice?

[Jon Holdman]

Hey Chris Bounds, I used to live in Rosenberg in the late 80's and early 90's. We were there last here and I'm stunned with how that area has grown. It reminds me of "Blade Running" instead of what I remember.

Anyways. If there is good demand, and termites haven't eaten the place up, this looks pretty promising. You don't just fumigate for termites. You can't really get rid of them. They live in huge underground colonies. You have to create a chemical barrier below your property to encourage them to eat other buildings. And they can do a LOT of hidden damage.

You're paying $11,500 per unit for $500 in rent. That's a 4.3% ratio. You have some room to spend money for the repairs.

The big question is do you have the cash to deal with this turnaround situation? Its going to take money to do the repairs and to hang on until you can get it turned around.