Looking at a apartment complex in a rural area

[Tip Lee]

Hi Guys, 

Just wanted to get some feedback on a deal my cousin and I are looking at. We're completely new to the multi family arena, so any feedback is appreciated. Here are the facts: 

18 unit apartment building, 2 stories, each unit is 2 bed, 1 bath. Each unit is one floor only. The property is located in a rural area, population is ~7000 people in the City/town. There is a Walmart and some other chain stores, and a few manufacturing plants. A lot of people that live in the town commute to nearby towns as well for work. 

Price is $450k, market rent for each unit is $455/month ($8190 gross total). Electric is paid by tenant and water is billed back but paid by owner. 

Here is the breakdown

Prop mgmt 10%	$869.00
Vacancy 10%	$869.00
Repairs 7.5%	$651.75
Cap Ex 7.5%	$651.75
Lawn Care	$150.00
Pest Control	$65.00
Turnover Repair ($750 per- 2x/yr)	$125.00
mortgage 6% APR	$2,160.00
Insurance ( $3600/yr)	$300.00
Taxes	$351.00
Gas/Electric	$1,400.00
Total Expenses	$7,592.50
Total Operating cost (no debt service)	$5,432.50
Income Rent (100% occupancy at current rate)	$7,770.00
Income Storage/parking	$-
Income Other (Laundry+ water)	$920.00
Total Income	$8,690.00

Cashflow monthly	$1,097.50
Cashflow annually	$13,170.00

Although current rent is $455, a lot of the units are on leases that are less, so actual gross monthly income currently is $7770 from rents. 

I tried to be as conservative as possible being that this is our first apartment deal and I know there is a lot we have to learn. I factored a higher interest rate, added in $ for turnovers, increased the vacancy from 8% which is what the building has to 10% and factored 10% mgmt although the plan is for us to manage. 

My concerns are the following: 

-Area- its more rural, not a up and coming city, will this make it hard to sell later? Hard to rent in a down economy?

-The current owner took great care of the property so there is not a huge amount of obvious value add things. We can update 3 units that but the rest have been updated. We could also add washers/dryers in each and convert the laundry room to another unit or two. We have thought about adding covered parking or storage as well. My concern is that there may not be as much room for value add opportunities

-Unforeseen things-mitigating risk: what else can we do to mitigate risk and plan for the unforeseen? Am I too low on cap ex /repair amounts? It has  a new roof, new sewer and all exterior plumbing so a lot of big stuff has been done. 

-Exit strategy- how realistic is it to think that we could add some value and sell a place in a smaller town in 5 years? Do these types of places usually take longer to sell?

Thanks so much for all your feedback in advance. Any input is appreciated.