Would you buy all 1 beds?

Question

This deal is no longer available but I found it quite interesting.

Would you purchase an apartment building 400 units that are all 1 bedrooms?

Jeffrey K. · Answer

I have many one units and there is less wear because most are only one tenant per unit.

Account Closed · Answer

I might if I coould get HUD to designate it as HUD senior housing. 400 retirees with their rent paid by the government, I could deal with.

10 units all with homeless for tenants? Crikey, Peter, you are some sort of masochist.

Jon Klaus · Answer

"7.8 Million assumable loan at 5.05%"
                              
                              This makes it interesting.   Asking 22% down to assume this loan.  However, I suspect that loan has a balloon sooner, rather than later.  Do you know about that?
                              
                              Also, that is a great location.  Is there land included to do any additional development?
                              
                              $25K a door for $800/mo each in rent is not bad.  89-93% occupancy is good, but not so much for forcing appreciation, as Vikram is saying.  However, you should be able to bring it near 100% if you drop the rents on the vacancies by 5-15% and do some marketing.
                              
                              I suspect this is as good a deal as it is because of the one bedrooms.  However, this is a big city, and that is a good location, and clearly the original developer/investor/banker believed it was the highest and best use of the property.
                              
                              What year were they built?
                              
                              I know you said it's under contract, but I think there is value in thinking through the deal to help you be more prepared for the next one.  And it could fall out of contract.

Vikram C. · Answer

Michael, that looks like a stabilized property.  What upside did you see?  Increaseing occupancy from 93%?  Or was the property charging below-market rents?  (But then, increasing to market rents would probably bring occupancy down some.)

Michael P. · Answer

Your right at 93% there isn't an absolute ton of upside thanks for correcting me.  If it was 89% I feel that there is upside though.  Would you agree?
          
          I hope some can chime in on this deal so we know what we are looking at.  I would love to hear what others think of these numbers so here they are.
          
          Loan matures in 2032.  I don't see any balloon on this.  In fact it had a prepayment penalty if paid off before August 2010.
          
          390 apartments averaging $506.  Please note I have left off some break down of the revenue but it is a 7% Vacancy.
          
          Total Annual Revenue:  $2,186,976
          
          Salaries:  $225,000
          Advertising:  $35,000
          Maintenance:  $200,000
          Administration:  $80,000
          Management 2.5%:  $60,142
          Utilities:  $180,000
          Taxes:  $172,313
          Insurance:  $85,000
          
          Operating Expenses:  $1,037,455
          
          Reserves:  $97,500
          
          Total Expenses:  $1,134,955
          
          Net Operation Income:  $1,052,021
          
          Annual Debt Service:  $561,895
          
          Net Cash Flow:  $490,126
          
          These were built in 1985.  There is no additional land to build more units.

Michael P. · Answer

This deal was Near George Bush and the Tollway in north dallas just south of plano.  It might actually be carrollton but I couldn't say for sure right now.  Think it might still be on Loopnet.

This was the 10 Million dollar deal I was referring to in my initial post.

9.5 Million purchase price
1.7 Million down.
7.8 Million assumable loan at 5.05%

2Mil a year revenue
1Mil a year OE
462k a year debt services
11% Cap

Can't recall occupancy but I think it was about 89-93%.  I remembered there being some upside potential.

Rich:  Any chance you could elaborate on why you would not buy a complex with only 1 beds?  I would love to hear what 35 years of experience tells us.

Jon Klaus · Answer

Michael, what did the numbers look like?  Where is it located?

Brian Levredge · Answer

You could rent out units like that as short term rentals where the tenants pay every other week.  Doing so is the equivalent of getting paid for 13 months of rent (26 payments per year) instead of 12.  I don't think you could successfully do that on 400 units though unless there is a strong demand.

Rich Weese · Answer

No. I would not. Based on 35 years on experience. Rich

Would you buy all 1 beds?

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