Working Towards My First Deal & Need Help

[Lou Ruggieri]

Okay so this is my first post here so if I am posting in the wrong forum, I apologize in advance.  Basically, I need advice and help.  I have a few residential multifamily deals under my belt, but it's time to upgrade to something bigger and I think I found it.  But, as with any giant step forward, there is a tremendous amount of trepidation.  So, I'm hoping with some help from some experienced people on here to avoid any major red flags or pitfalls.  

So without getting into to many specifics, below is the the Income/Expense sheet as well as the rent roll.  This is a 24 unit complex with 4 vacancies.  There are no major fixes needed as of yet that I can see from the onset.  But my initial question for you all is aside from the leases being out of date, is there anything on these sheets that looks suspicious or does it raise any red flags to any of you?  I'm working on coming up with an offer, but before I do, I want to make sure I'm not missing anything.  

Thanks in advance

[Joel Owens]

I don't like stuff recently stabilized in the last 1 to 2 years and being sold off at a premium.

You do not have enough of a tenant history at the complex to show stability over many years. This is why an older landlord retiring can be a good purchase for an investor because rents are likely below market  and tenants have been there a very long time.

Instead if you buy a newly stabilized property you need to make sure there was no waiver of deposits or free rent to get tenants in so the owner could try and show higher income when they sell. Also make sure if it was newly renovated they didn't lipstick the property with carpet,paint, replace door knobs etc.

You want big items like heating,a/c, roof, plumbing, electrical,etc. to have a lot of life left on them.

If you buy based on inflated rents and then have flat to depressed rent in coming years, higher turnover and make ready costs, and high capital costs for large ticket items you could lose a bunch of money.

Make sure the property insurance policy is not a master one insuring multiple properties as the owners policy could be low in cost compared to what you will pay. Check additionally if property taxes have gone way up in recent years and NOI is based on that. If not likely a big increase is coming and unlike commercial NNN where tenants pay the taxes you will eat that cost with an apartment building.

Look at if it is landlord paid utilities or not. If it is call up water and sewer department and see if their rates have gone up recently or in previous years. Some kept them flat for 4 to 5 years during the recession or had nominal increases. Now they are raising at a faster clip which can eat into your returns even with no leaks.

24 units make sure you own locally and not out of state unless an A class location and A class tenant base. You need larger scale owning farther away.

If landlord pays water with older building likely look at 50 to 55% expenses. Sellers usually try to do the 35% to 45% crap with expense estimates and if they just lipsticked the property that might be true for a short period of time but not while you own it and the band aid wears off.