20 Unit Older Apt Building - Your Insight Is Needed

[Josh Justiniano]

Just put in an offer for around 715k on a building in a lower income area in Chandler AZ, but surrounded by good neighborhoods with great schools, as well as higher income areas This particular neighborhood's median household income is around 30k whereas surrounding neighborhoods are 60k-85k. Good employment and strong economics it looks like.

It's an older building on a master meter. Built 1938 (Yikes!)

Our plan is to sub-meter to save on those utilities. 

First question: Even if all the big ticket items such as roofing, plumbing, electrical, etc... has been kept up, what are your opinions about building older buildings? Please share some experiences.

Second Question: How do these numbers compare to your "average rule of thumb" numbers you might use in an analysis? Are these figures too high? Too low? 

Gross Potential Income	$132,000
- Vacancy	($10,560) 8%
- Concessions, Loss to Lease, Bad Debt	$0
Effective Gross Income	$121,440
Other Income (Laundry)	$2,500
Total Net Income	$123,940
EXPENSES
Real Estate Taxes	$12,500
Insurance	$0
Contract Services	$2,190
Trash Removal	$0
Electric	$0
Gas	$0
Water and Sewer OR All Utilities	$37,500
Legal	$1,000
Management Fee	8.00%	$9,915
Repairs and Maintenance	$7,500
General/Admin	$1,100
Payroll	$0
Other	$500
Deposit to Replacement Reserve	$3,000
Total Expenses	$75,205
Net Operating Income (NOI)	$48,735
Debt Service
Principal	$7,384
Interest	$24,857
Total Debt Service	$32,242
Total Distributions to Members	$16,493
Member Contribution	$234,163
ROE	7.044%
Member Cash on Cash Return	7.04%

[Account Closed]

You need to base your due diligence on the actuals from the owner and you need to see a copy of each lease from each current tenant. If you don't know the shape of the building how can you determine a property value? You don't buy the building first and the find out if it or they need new roofs and HVAC, etc. Are you going to manage this from 500 miles away? What if a tenant decides to stop paying rent? Are you ok to drive all that way to the property frequently. After all the back and forth you will probably burn through the small cash flow. Is the building wired to be individually metered? If not how much and is the city codes going to allow this? If so, how much for each permit x20=$$.

This is obviously a c-d property. I think $35,750 per door is way to much, especially if there is alot of defered maint. Is it a war zone? Not trying to rain on your parade.