Extra eyes needed on a 46 unit apartment deal I am analyzing

[Emmanuel N Okafor]

Hello,

I am trying to buy my first apartment complex. I currently own 11 single family rental properties. I did an interest-only cash out refinance last month and pulled out $914,000 that I want to use to buy an apartment. My single family portfolio cash flowed $80k a year before my refinance and it now cash flows about $40k. My goal is to get a combined cash flow of at least $200k and in 5 years, I want to payoff my interest only loan and own my single family properties out right. 

I would appreciate any feedback on this deal. If you see any red flags or opportunities I missed. I also want to know if my offer is too high or low. 

My thinking

I view this as a value add investment opportunity. Based on T12 data and other documents I viewed I recalculated the apartment value. I used NOI of 175,646 and the DFW area value add cap rate of 5.5% to get a value of $3,193,663. Since they have a low reserve for security deposit, high late payment rates and no metered utility, electricity or gas, I offered $3,000,000. I reasoned the $193,663 can be used as reserve for metering the property and other needed non-recurring replacements. Is my offer too low? I would like to get the units metered but don't know how much that will cost. Ideally an immediate win for me would be to cut expenses down from the present 65.5% to 50% with minimal expense which will add a million to the valuation and allow me to do a refinance in a few years to pull out equity to buy another apartment. 

Details about deal

• 1970 46 unit apartment in the DFW area.
• 26 units are 1 bedrm, 1bathroom | rent $990 |security deposit $100
• 20 units are 2bedrm, 1.5bathrm | rent $1230 |security deposit $200
• Asking price is $5,200,000 | NOI=$217k | Cap Rate=4.17

Revenues

• Total Revenue=$567,776 | Net rental revenue=$449,923
• rental losses=$117853
• Other revenues (application fee, pet fees, deposit forfeitures) =$59,766
• Total Revenue=$509,689

Operating Expenses

• Total personnel expenses=$88,603
• Total property administrative expenses=$28,277
• Total Leasing expenses=$4907
• Total utility expenses=$36,991
• Total service expenses=$10,953
• Total cleaning and decorating=$16,305
• Total repairs and maintenance=$14,468
• Total property taxes=$78,731
• Total Hazard insurance=$27,107
• Total operating expense=$334,042 (65.5%)
• Net Operating Income=$175,646
• Total non-recurring replacements=$25,086
• Available for debt service=$25086