Help Analyzing a 14 unit apartment

[Adriel Hsu]

Hello, 

I have a 14 unit deal I am looking to purchase, but a few things are making me hesitant so I’m reaching out to BP for opinions. 

See the 3 things after the financials 

Purchase price: $390,000 

I can get financing at 25% down, 5.5% amortized 25 years 

Per seller: 90% occupancy or higher since they owned in 2002 

8 - 1 bed/1 bath at $550 per month 

6 - 2 bed/1 bath at $650 per month 

*One of the 1 bed/1 bath has an onsite manager/handyman living for free so there is no property mgmt costs in the expenses* 

Owner pays water and trash 

2017: 

Total Operating Income: $79,989.50 

Expenses: 

- Lawn Maintenance: $1,800 

- Water: $6,816 

- Trash Collection: $1,740 

- Pest Control: $820 

- Supplies: $4,280 

- Repairs: $9,852

- Insurance: $4,153

- Property Taxes: $10,515

Total Expenses: $39,976.82

NOI: $40,012.68

2016: 

Total Operating Income: $83,154 

Expenses:

- Lawn Maintenance: $1,800

- Water: $5,820

- Trash Collection: $1,680

- Pest Control: $604

- Supplies: $6,639

- Repairs: $9,910

- Insurance: $4,153

- Property Taxes: $10,521

Total Expenses: $41,127

NOI: $42,027

So if I'm all in at $115k (down payment + closing costs), assuming 40k NOI, i'm looking at 16.4% cash on cash with one unit vacant at current rents (without anything set aside for capex however)

WHAT WORRIES ME: 

1) No washer/dryer connections AND no laundry facility on site (would have to build a new building and run new plumbing to add one). So tenants have to drive to a laundromat to do their laundry This wouldn’t be such a big issue until.. 

2) Rents are higher than nearby apartments. I comped 3 other larger apartment complexes in the same area that have amenities such as a pool, carports, and laundry facility on site, and their 1/1’s are at $500 and their 2/1 is at $600. Thats a large discrepancy considering the amenities they have. 

3) It’s a C class property in terms of location and building itself. Location wise, it’s one block away from the zip code zoned for the good schools, so it’s not in a dangerous and bad area and It’s very close to a popular small strip mall/shopping center and grocery stores, BUT it is zoned for the same terrible schools as the more dangerous parts of town. Appreciation/rent increase “as is” are not going to happen.

New underwriting at the same rents as the other apartments and assuming a 85% occupancy, and budgeting $300 per unit per year for CAPEX, my new cash on cash is 9%. Still good but for a C class? Maybe not worth it. Thoughts?

I was able to go through county records and saw they bought it for $220,000 in 2002. 

New roof out on in 2015. Run by a brother and sister who live 4 hours away so they aren’t the most efficient management even with the on site manager/handyman. I live 25 mins away