Court Orders Sale: Value-Add 8 Unit Apartment Bldg

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Court Orders Sale: Value-Add 8 Unit Apartment Bldg

Montoya Lashley
Investor · Chicago, IL · Member since 2015 · 13 posts · 0 votes

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.

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Matthew Vitlin
Real Estate Agent · Austin, TX · Member since 2015 · 110 posts · 29 votes
10y

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.

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  • Matthew Vitlin
    Real Estate Agent · Austin, TX · Member since 2015 · 110 posts · 29 votes
    10y

    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.

    1Reply
  • Anita Fofie
    Real estate consignment; Virtual REO wholesales · Vancouver, Vancouver, BC · Member since 2015 · 49 posts · 18 votes
    10y

    Sounds like a good opportunity. The one thing I missed was an allocation of funds for property management. Are you planning to do that yourself or will you hire a PM company? You don't want to buy yourself another full time job babysitting tenants and toilets.....unless you do :)

    Conventional thinking would advise you to take out 10% for property management expenses. 

    The other thing to factor in is legal/eviction costs, but I don't know what % to allocate to this

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    You sure studios and 1/1's get that kind of rent?

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  • Montoya Lashley
    OP
    Investor · Chicago, IL · Member since 2015 · 13 posts · 0 votes
    10y

    Thanks everyone for your comments. All of the input is greatly appreciated and any little tips or things to think about helps. @Matthew Vitlin I have asked my realtor to check on the current occupancy of the property and will definitely look further into the historic occupancy rates. Thanks.

    @Anita Fofie I do plan to self manage as my step-dad, who's been in real estate for years, has a team of handymen and whatever else you can think of for extremely discounted flat fees which I will be able to utilize for little or nothing. Also, the legal costs you bring up are a good point. I have seen many investors calculate repairs and maintenance for a combined 5% so I purposely allocated a separate 5% for maintenance and misc. to account for any legal/eviction costs. I figure my step-dad's team of handymen will help in this area as well taking care of random maintenance calls, snow removal, lawn care, etc. However, please let me know if you would still allocate more for legal costs outside of this.

    @Wayne Brooks I used an average of $700/mo. for the 1/1's, $625/mo. for the studios and $850/mo. for the 2/1 from rentometer.com. After double checking rents on craigslist, zillow, etc. I found that the average for the studios is a little on the higher end and the 1/1 average is very much on the low end for the area so I figure that would balance out. Let me know what you think. 

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  • Richard Jeffries
    Lender · Chicago, IL · Member since 2015 · 83 posts · 13 votes
    10y

    Either the rehab or the purchaseprice seems really low for the area unless its one of the worser parts of Austin. If so than you might be overestimating the rents. Also I didn't notice points charged for the HM loan or any other closing costs. But all in all if your numbers hold close to true it seems like it could be a good deal. In regards to refinancing if you want to get rates lower rates from conventional lending you typically have to wait a full year for seasoning. If you want to talk more about the property or the process feel free to send me a PM

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