38 Unit Purchase. $105k cash flow. Good deal?

Question

I am looking at purchasing a 38 unit apartment complex in Maine. Our area is a bit cheaper market than other places in the US. The property is in an excellent location. Right in town and walking distance to hospitals, schools, municipalities. Buildings are also in excellent shape, very well maintained, but all will need roof replacements.

Here are the metrics of the property.

Asking Price $1,330,000 ($35k/unit)

Total Income - $319,500

Taxes - $31,260

Insurance - $14,760

Maintainece - $12,000

Electricity - $20,032

Heat - $22,956

Trash - $2,400

Lawn - $7,200

Snow - $12,000

Water/Sewer - $1,416

Management - Self

Total Expenses - $126,528

Net Income - $192,972

Debt Services - $89,640 with 20% Down, 5.75% Interest, 15YR/20 Amortized

Total Cash Flow - $103,000

DSCR - 2.51

Is this a good purchase?

Also, I am purchasing for 35,000 per unit, but Estimate appraisal will come closer to $43,000/unit.

Mike Dymski · Answer

If the vacancy rate is reasonable, this may be a good one.  If the property is worth $10k more per unit, worst case is you simply flip it for a $380k profit (minus selling costs and taxes).

Maintenance is too low...need to 2-3x that figure (which will include unit turns).

Include a vacancy amount in net income and cash flow...and include cap ex reserves in cash flow...and property management fees even if self managing (may have to use 3rd party management at some point and, even if not, you need to get 'paid' for self management, which is different than investment income).

Ensure that the area is fine.  $700 per month rent in some areas can be quiet and stable and a war zone in other areas.

Bjorn Ahlblad · Answer

Yes it looks like it can make money. However if those are numbers from the seller or listing you need to get your own. Property taxes, insurance and other expenses-vacancy, delinquency etc. Use Estoppel certs to verify rent payment and deposits. Security deposits and advance rent are your money to be paid on closing. Walk every unit and get a professional inspection. Keep us posted!

Ed Emmons · Answer

The exact address is important in Lewiston. Some neighborhoods will be difficult to collect rents. I went to war with PTL several years ago and they told all my tenants not to pay rent. There was no reason other than they could. So look really close at the whole deal. If you want more info you are welcome to PM me.

Chris Seveney · Answer

@Andrew Michaud

Definitely check the expenses as heat and electric look low for maine - especially if it’s off of oil which also your price may have doubled in past year.

As mentioned get estoppels from tenants if paying

Have you inspected interior of units as well?

Brandon Vukelich · Answer

Already a lot of good feedback here.  Red flags for me that stand out on the financials are water, sewer, trash and maintenance.  W/S/T $3800/year?  Are the tenants being billed back a portion or on separate meters?  I would believe that Maintenance & Repairs would run at least double the $12k/year figure.  I see you intend to self-manage.  Not sure about your experience but 38 units is not for the novice landlord.  I'd find it hard to believe it is currently performing at a 14 cap but maybe you found a unicorn.  Best wishes on the decision!

Andrew Michaud · Answer

I currently have 20 units. Reason Water/Sewer is so low is 2 of 3 properties have their own well and septic. This will be a large purchase but don't think it will be too bad. Hopefully not many phone calls!

Percy N. · Answer

@Andrew Michaud, what you have labeled as "Net Income" is actually "Net Operating Income" (NOI).

Value of the property = NOI/Cap rate

At a cap rate of 5 (not sure what it is in your market but this is a conservative national avg), the value would be around $3.8mm

The expenses seem on the low side as others have said. Also add in property management, payroll, etc for underwriting purposes.

Are these expenses from the seller or broker's pro-forma or actual T12? Don't forget to factor in increased property taxes after the sale, etc.

Bethany Turon · Answer

Lewiston is really street by street, for example, if this was on Blake, Knox, etc, It's quite possibly not a good deal.  It depends on building condiiton as well.  Feel free to PM to discuss further.

Will Stewart · Answer

This is what I was getting at with my response, just make sure with someone who knows the area, very easy to get blinded by the numbers.

38 Unit Purchase. $105k cash flow. Good deal?

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