Need Help Knowing If This Is A Good Purchase? ( MULTIFAMILY)

[Marshall Zakarian]

I've been proposed a Class B multifamily building in a desirable area with low inventory. Below are the numbers.

9 Units( all one bedrooms ) ( 625sqft )

2 units= $880, 2 units= $800, 2 units= $725, 1 unit= $845, 1 unit= $670, 1 unit= $625.

Revenue: $74,700

Net: $ 55,000

There is no property management. Roof is 20 years old and furnace is about 35 years old.

Currently the rent is under average market rent. There is a few listings currently right now that are 500sqft for $925 in a less desirable street.

I'm pretty certain that I can get $1,000/month after I remodel the bathrooms, change the floors to hardwood, remodel the kitchens and new paint. This would total roughly about $100,000.

The seller first wanted $800,000 and after a month he called me said he will take $700,000.

The seller is motivated to sell and I'm pretty certain I can grab it for $600,000.

What do you guys think?? THANKS FOR THE FEEDBACK!

[Oren K.]

Not clear if you are including the roof & boiler in the remodeling / capex plan but lets assume you are. Also if the boiler has not been upgraded in 35 years, there are probably other things that need to be done (e.g. windows, sewer connection, drain stacks, etc.).

Lets say you are spot on with your estimate including everything; The bottom line is that you will be all in for ~$700,000 ($600,000 purchase & $100,000 remodeling) and expect to have a Potential Gross Income of $108,000 per year ($1,000 x 9 x 12). Ignoring the currents owners numbers, which I don't believe anyway (~30% expenses!!!), and using 50% for expenses, would leave you with a NOI of ~$54,000 which translates to ~7.7 CAP (54,000 / 700,000) once the work is done and all the tenants are turned over (at least a year?).

A couple of caveats; 

1) As this is an older property, it would not surprise me if the expense ratio was higher 

2) Carrying cost are not included 

3) Unless you have done this a few times before, renovation costs tend to inflate 

4) Your time / effort is also not included.

So my question to you is would you be satisfied with a 7.7 CAP? Can you generate this return with less effort / work? How confident are you in your assumptions / projections?

Good luck,

Oren