20 Unit in Olathe, Kansas (Kansas City Area) Analysis

[Anthony Gayden]

Here is yet another multi-family deal analysis that I am doing. This one is a 20 unit apartment complex in Olathe, Kansas, which is in the Kansas City suburbs. The location is near downtown Olathe, which is older and a little rougher than other parts of Olathe, but still a relatively good area. The rental vacancy rate for Johnson County is 94-95%. The county appraiser has the building valued at $561,000 for 2014. This building is listed on the MLS here.

Asking Price $737,500

20 Units

built in 1979

8 are 2 bed/1bath, 11 are 1 bed/1bath, and 1 is a studio

Gross Income $128,460 (average $535.25 per unit a month)

Owner pays water/sewer/trash

Financials:

They were not provided in the listing, so I am estimating on some costs.

Down payment $184,375 (25%)

Mortgage Estimate $3650/month (estimated 5 year balloon, 20 year amortization, 5% interest, 25% down payment)

Vacancy Loss $12,846 (10% estimate)

Adjusted Gross Income $115,614

Property Taxes $7975 (2013 actual amount)

Insurance $3500 (estimate)

Maintenance $12,846 (10% Gross Income)

Water/Utilities $14,400 (estimate $60/month per unit)

Property Management $12,846 (10% Gross Income)

Operating Expenses $51,567

Net Operating Income (before financing) $64,047

Annual Mortgage $43,800

Income (after financing) $20,247/year, $1687/month

Cash on Cash Return 10.98%

Am I underestimating key costs here? Any advice in my analysis would be helpful. Also, I have no clue how much closing costs would be for properties in this price range getting financing from smaller local banks. 

[Mark Breaux]

Using rough numbers assuming 30 year amortization with 25% down and 6% rate, and using 50% + debt service for expenses, I get $24,462 for yearly income. At $737k, your cash on cash return would be 13%. That is a good deal to me...