Court Orders Sale: Value-Add 8 Unit Apartment Bldg

[Montoya Lashley]

Hi BP,

I'm a Chicago area newbie currently seeking my first deal. I do not have a completely established criteria yet, but I was considering going the route of purchasing a small multi-family (2-4 units) with owner financing. However, I came across a Court Order Sale: Value-Add 8 Unit Apartment Bldg (4- 1/1, 3 studios, 1 2/1) for $150K in the Austin neighborhood, for the Chicago natives who might have an idea of the location. I am considering getting an inspection done, doing a walk through with a contractor to estimate the repair costs, then placing an offer to purchase it to buy and hold for cash flow through a hard money lender (Purchase Price + Repairs) then refinance after about 6 months. Anyhow, I figured why not try to go big and look more into this since that's the ultimate goal anyway. I'm waiting to hear back from my realtor in regards to how the court order sale came about (death, divorce, foreclosure, etc.) so I'm not sure of all the details yet, but I'd like to get some sort of feedback as to whether some more experienced investors think I'm in over my head with this as a potential first deal. If you all do think it could work out, please share any suggestions on things I should be aware of and plan for.

I consider the following a conservative analysis of estimates:

Purchase Price $150K

Repair Costs $50K

ARV $300K (realistically could be $350K+)

Rental Income (median rents of area) $66,300

Taxes $7,100

Insurance $2,000

Water $3,600 

Electric $3,840 (all units are individually metered but just to be even more conservative i added paying electric)

Vacancies(8%) 5,304

Maintenance & Misc(5%) $3,315

Additional Repairs(5%) $3,315

Cap Ex (10%) $6,630 

NOI $31,196

HM Debt Service (14%)  $28,436.88 P & I

From what I can see it looks like I would still cash flow paying full monthly principal and interest payments on the HML. The only thing that I feel would make or break the deal is the repair costs as the $50K is a completely random figure until I can get an inspection and speak with a contractor.

[Matthew Vitlin]

It looks like you have your numbers well broken out, just need to get a contractor to help nail down what the repairs would be. If this deal pans out like it does then it looks like a solid investment opportunity to me, you get to capture the increased value of the property as well as cash-flow positive while holding it. I would be sure to be confident in the vacancy number as that will have a big long-term impact. And being able to refinance with a traditional loan based on the ARV instead of hard money will make this even better down the road.