Strategy on *OLD* 10 unit apartment building? What would you do?

Question

I am interested in your experienced feedback and opinions on this deal specifically. Thank you in advance.

We currently own some small, less than 20 unit multi family buildings. I was presented with this off market opportunity and have been working with the seller for about one year now. They have on the property over 30 years. They are elderly owners and self manage. The building is what’s in question…

We don’t know the specific age even after pulling all of the county information but I would guess that it was built around the turn-of-the-century, 1900 or so.

The building is not something that we would normally look at because of the set up – the units have gas stoves,Radiant boiler heating, common water etc. Everyone is currently on a month-to-month lease that’s obviously a gross rent. Basically, it’s one of those buildings you drive-by in the dead of winter in on the third story the windows are open because it’s too hot up there but the tenant is not paying!

Radiant boiler heating, common water etc. Everyone else is currently on a month-to-month lease that’s obviously gross. Basically, it’s one of those buildings you drive-by in the dead of winter in on the third story the windows are open because it’s too hot up there but the tenant is not paying!

Because of the high utility costs and abuse, below average rent and an older building with some definite functional obsolescence, this is why we hesitate to move forward. Because of our history and experience, remodeling the building is not the issue at all. The owner actually put a brand new roof on the building last year.

We have also considered instituting the rubs system on utility charge back per square foot of the building. Most likely if you purchase this most if not all of the tenants would vacate as this will be new management with a new set up and honestly I would like to go unit to unit and do our rehab as quickly as possible.

Rents are between $350 and $600 gross. I believe after we spent some money on the building and show some easy improvements those rounds can easily increase a minimum of $100 per month. If we do some sort of utility charge back system and I still think rents could increase and we could attract better renters in general.

I should preface this by saying the building is in an area that is somewhat world of draws from many larger towns and there are not many rentals available at all. Average rent in this area starts around $700-$800 for a dump!

Building has low taxes and nothing else really is out of whack. There is on site parking and very little yard to mow.

Curious as to how any of you would handle the situation and what your thoughts or concerns might be specifically due to the age of the building? I don’t think this is something that we would prefer to own long-term but possibly go through the building And improve the property throughout.

Gross rental income is currently around $55,000 but I think it would be more like $70,000 once improved. Purchase price is < $250,000 for 10 units.

Thank you.

Jill F. · Answer

We bought a 1900, 7 (one-bedroom) unit last June. Rents were very low and the tenant crazy was deep. Luckily the heat was already separated, only water and gas hot water is supplied by landlord. By far the biggest issue is the plumbing. Now that we are down to 3 tenants we are about to completely redo the iron main stacks that end in a crawl space and 4 baths and 4 kitchens for 4 of the units. We just finished getting quotes (ouch, ouch, ouch) and have selected the plumber. I don't mind old buildings if they were originally built as apartments. I really don't care for multi units that are hacked up old houses. Around here they are seldom done well.

Robin Casper · Answer

@Jeff Nydegger I’m just keeping them long term. Hopefully improving the area after the rehab

Jeff Nydegger · Answer

@Allyssa Mccleery Thanks and will keep forum updated.

Jeff Nydegger · Answer

@Salvatore Lentini Good point. Thank you.

Allyssa McCleery · Answer

@Jeff Nydegger Understandable. Although, as long as you are diligent about maintenance and repairing the damage that has been done I don't think you will have a problem finding a buyer. There are plenty of older buildings across the county that are very desirable places to live and own :) I think you have a great opportunity and look forward to hearing about the results!

Salvatore Lentini · Answer

@Jeff Nydegger - there aren't just cons with older buildings... there are pros as well. The old saying "They don't build them like they used to" exists for a reason. I have a few older properties and they are, pardon my french, built like brick $hit houses :)

Also, depending on the building, if it has come architectural character, once you clean it up with paint, landscaping, windows etc it will stand out from the other generic apartments in the area.

Jeff Nydegger · Answer

@Bob Woelfel Thank you for your feedback. I do like the way you are billing back tenets for the water bill. It’s definitely something I’m going to have to implement and I honestly feel that because of who he has in the building, most of the tenets will leave, which we are fully prepared for. We will purchase the property < $200,000 and probably only put in about 50 or $60,000. Foundation seems good and some of the electric and plumbing has been updated. If the building was full of old knob and tube wiring and all the outlets are ungrounded and had tons of safety issues I’m not sure if we would pay any money for this building!

Jeff Nydegger · Answer

@Allyssa Mccleery Thanks for your feedback. This was an off market deal that I mailed to just because I drive by it all the time. The rehab of the building and retenanting everything is not what we’re scared of but the actual age of the structure. Mostly because we would like to re-position this property and then resell it. I want to make sure the next buyer, whoever that is is OK with 120-year-old building too!

Bob Woelfel · Answer

@Jeff Nydegger I agree with the others in that it sounds like a great value add opportunity. You already know what issues are and as long as you have a plan in place and know what its' going to cost to fix the issues and improve the building then I would say go for it. Once you get it stabilized it should cash flow very well. Buildings of that age I normally look heavily at the foundation, supports, electric and plumbing to make sure you don't have any expensive surprises. I would make sure you have a plan for the heat as it sounds like it's an issue. Just know up front what you are going to do to improve it.

We have a 6 unit where we pay the water bill, but we bill back all the tenants a flat fee of $25 per month for water. It doesn't completely cover the bill, but it certainly helps us offset the cost and increases our NOI from when we purchased it.

It sounds like you may not want to hold long term so my last question would be is if there is a market to sell in a few years after you get it stabilized and performing the way you want? Any idea what Cap Rates are in your area or what stabilized building trade for? If you're getting it for less than 250k, but have to put 100k into it are you confident you'll get enough out of it at sale to compensate you for turning the building around? I would imagine you would based on the rents, but just something to consider. Best of luck.

Ashley Nowka · Answer

anyone have a small apartment complex you are wanting to part with ? I am looking for my first apartment building on the small side to get started.

Strategy on OLD 10 unit apartment building? What would you do?

Strategy on OLD 10 unit apartment building? What would you do?

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