Baltimore Apartment Complex Auction Experiment-Property Analysis

[Logan Beckner]

Hello BP forum users!

I'm challenging myself to push my comfort zone and I'm going to do my best to go to an in-person auction (this will be my first) to see how it is done. The experiment part is coming with my analysis... I'm planning to do the analysis of the property so that I can show up with a number in my head of where I would stop, then converse with the highest bidder to see what they did differently than me.

Here's the scenario. Baltimore County, MD property - Four 1BR units and Two Eff. Units. Fully Occupied with all leases continuing through 2022.

Open bid: 300,000; NOI from seller: 35,000 while self managing; Cap rate... unknown? (Struggling to figure out the best way to determine this but I've been running numbers around the 7%-8% area based on the surrounding location). Seller Financing IS available.

My math: From a traditional investing standpoint of investing 25% down the breakeven (for both cash flow and CoC return) purchase price is 450k when accounting for the additional management fees. With these same numbers, a $315,000 purchase price would give you a CoC return of around 7-8% and about 600/month PURE cash flow. this is all assuming a 20 yr Amortization with a commercial loan. (Again, I am new to this so tell me if there's another way)

Then I tried less money down approach for the seller financing. Instead of the 20yr, I stuck with a 30yr amortized loan with let's say a... 3 year balloon payment. the break even for the numbers I ran here was around 470,000. At 400,000 I'd be looking at only 300/month PURE cash flow but 8% CoC.

SO... What's am I missing here? Is this more of a "BRRRR" type approach? Where I would need to use OPM and raise the rents to increase the NOI? The expenses shown from the seller seem low as they are especially since they were self managing. Then I'd be able to refinance later on and increase the equity? Maybe the seller financing would be a similar approach where the number's aren't great right away from it's more of a multiple year play?

I know there's SO much more to the story that I haven't shared, but I hope this information will at least paint a relative picture for all of you to see where I have gone wrong in my analysis. The property was sold in 2006 for 300,000 and there's other nice single family homes in the area. Any help or advice for preparing to go to this auction would be so GREATLY appreciated. If you need more information to help me out just ask and I'll do my best to provide it!

THANK YOU!

Logan Beckner - Frederick MD beginner investor