Am I paying too much?

Question

John Chapman · Answer

I've got to say the numbers you are putting out make this look like the deal of the century.  I don't say this to be mean, but these numbers look almost too good to be true, particularly for north Dallas.   I say this not to be mean but only because they just seem far beyond anything I've seen.  (I'm not active in the area at the moment, nor am I doing any marketing, I'm kind of shooting from the hip.)  Again, if accurate and the place is not falling down, then it looks like a grand slam.  Congratulations.

In answer to your original question, I don't think $50k/unit is unreasonable for $1100 rents.  That number of $20-30K/unit, I think, is usually thrown about for units that are renting at something like $550-$650/door.

Is it all bills paid?

Jeff J. · Answer

$10k/mo for $450k is a great deal.  Even if they need rehab you can easily cover that through existing cash flow, which will be substantial.  You put a little elbow grease into these and in 12-18 months they would likely appraise well north of $700k.

Carlos Flores · Answer

To add to what Jon asked, are they configured like townhomes, units on multiple floors or 1 story?  Separately metered (what)?  Individual HVAC or central chiller?  If the later, 2 or 4 pipe?  Pitched or flat roof?

Jon Klaus · Answer

What year was it built, Kim?   What are the unit sizes?  SF and beds/ baths?

Shaun Reilly · Answer

Numbers sound very good as others have said.

This place easily meets the 2% rule (as long as the repairs aren't very high) and the cash flow looks great with the 50% rule.

You do need to do the proper due diligence on things like the utilities to get a better feel for the exact expenses and put in adequate factors in for vacancy, repairs and capital and of course management.  Even if you end up over 50% you still have a lot of cash flow here even after less than amazing financing on it.

Sounds like there may be tenant problems but if they are all under market then just get the problem people out and re rent.  It sounded like strong demand in the area too so didn't seem like that should be an issue.

It does sound like you are a little skittish about needing to repairs that are much more than basic cosmetics.  If there are enough issues that you don't think you want to take them on I would not recommend walking away right away.

Given how many of your local colleagues here are so excited about the deal one of them might be willing to take it off your hands for a small wholesale fee to you.  Even if it ends up not fitting your current model you found an awesome deal that none of them could.  It is legit to monetize that and make everyone happy.

Bryce Y. · Answer

I would go through the financials with a fine toothed comb and question/verify everything.  Those kind of numbers would make sense for south Dallas, but are virtually unheard of in north Dallas.

Is this really an apartment building?  Or a series of townhomes?  Those kind of rents (for apartments) would mean class A with all amenities.

Kim H. · Answer

Jeff, I think you have hit the nail on the head.  I do know the property is old and could very well have asbestos (but I was told that it was totally remodeled inside in the last 10 to 15 years-- the outside does not appear to have been remodeled, but is clean and well kept).  I don't know about utilities yet.  My guess is that they are owner paid.  I also know from talking to a few people that there are some major tenant issues with non payment and late payments, however I don't know if it's all 9 or just a few.  I am anticipating that I will need to replace all 9 tenants and it may take 12 to 18 months.  Unfortunately I heard about the property from a colleague and jumped on it without asking too many questions. Now I need to see inside the units and do my research to uncover the bad and the ugly.  I am not willing to spend a fortune on repairs, so if it looks like a money pit I will walk away. I have experience with money pits and I never want to go down that road again!  In fact, I kind of made myself a rule that I would never buy a property again that needed anything more than flooring and paint and possibly a few fixtures....I guess I will find out soon enough if this one meets that criteria.  I am hopeful but cautious.

Jeff Kehl · Answer

This sounds similar to a deal I bought last spring. It is 20 units but rent for less than half yours. I paid $445k for $9100 gross monthly rent. This is an older building though and we've done a lot of work to it.

2 things to watch out for.

If utilities are landlord paid make sure you know what they'll be. On my place they've averaged 20% of gross rents in the past... We've made repairs so hopefully they won't be quite that bad in the future.

If it's old enough watch out for asbestos. I spent $20k to remediate asbestos.

Jon Klaus · Answer

As the others are saying, this sounds like an excellent buy.  As you ratchet rents up to market rates, it gets even better.  How did you find this deal?

Chai Sag · Answer

Kim

It sounds fantastic to me!

I would buy something like this  all cash

Congratulations!

Am I paying too much?

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