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Updated almost 10 years ago, 02/25/2015
20 Unit Older Apt Building - Your Insight Is Needed
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% |
@George Paiva Well, we actually canceled. The "broker" who was helping us on the transaction lied about her experience, lied about the fact that she was a broker, and looking further into her background she was facing 12 years in prison plus 500k in fines for serious real estate crimes and SEC violations. It would be hard to list all the things we found out about her. So, needless to say we put in a cancelation. Thank god for google! Lesson learned! Whenever doing business with someone, prior to wiring any money into escrow check out who you're dealing with. A simple google search can yield startling results. LOL!
@Jared Vidales Yes. That was the plan. He's a JV on the deal and the building was only 15 to 20 mins. from where he lives. So just a monthly drive by and walk thru while the PM would handle everything else. But considering the story I wrote in the first part of this post we had to cancel!
I own a 2- 20 unit buildings in Charlotte, NC. I bought in the last few years. I wont buy on 7% cash on cash. I would be more aggressive with the offer. My offers are based on 20% CoC or more.
@Dave Fontana How did you manage to get 20%? How are you calculating that? Is that levered and before cap reserves and tax?
- Rental Property Investor
- Charlotte NC Fort Mill SC Lake Wylie SC, SC
- 103
- Votes |
- 174
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@Dave Fontana , same here, Dave. My offers are based on a goal of 20% CoC. I don't always get it, but I try. I've managed to get my small portfolio's average to 18% CoC (yes, after all reserves and taxes and everything).
I just closes on this deal. 20 units and in lieu of negotiations, the owner threw in a 1 family, which was a help. I paid full asking. The owner was a bay record keeper. But since i owner a similar property. I didn't care about this expenses. All I asked for was the leases. He is holding paper for 24 months.
Purchase Info
Purchase Price $660,000
- First Mortgage -$462,000
- Second Mortgage -$0
= Downpayment $198,000
+ Buying Costs $13,200
+ Initial Improvements $10,000
= Initial Cash Invested $221,200
Square Feet (21 Units) 14,250
Cost per Square Foot $46
Monthly Rent per Square Foot $0.82
Cost per Unit $31,429
Average Monthly Rent per Unit $557
Mortgages First Second
Loan-To-Cost Ratio 70% 0%
Loan-To-Value Ratio 70% 0%
Loan Amount $462,000 $0
Loan Type Amortizing
Term 30 Years
Interest Rate 6%
Payment $2,769.92 $0.00
Financial Metrics (Year 1)
Annual Gross Rent Multiplier 4.7
Operating Expense Ratio 35.9%
Debt Coverage Ratio 2.57
Cap Rate (Purchase Price) 13.0%
Cash on Cash Return 23.6%
Income Monthly Annual
Gross Rent $11,700 $140,400
Vacancy Loss -$585 -$7,020
Operating Income $11,115 $133,380
Expenses (% of Income) Monthly Annual
Cleaning & Maintenance (9%) -$1,000 -$12,000
Insurance (4%) -$416 -$4,992
Management Fees (9%) -$1,000 -$12,004
Taxes (7%) -$782 -$9,387
Utilities (6%) -$615 -$7,380
Garbage Collection (2%) -$176 -$2,108
Operating Expenses (36%) -$3,989 -$47,871
Net Performance Monthly Annual
Net Operating Income $7,126 $85,509
- Mortgage Payments -$2,770 -$33,239
- Year 1 Improvements -$0 -$0
= Cash Flow $4,356 $52,270
Those operating expenses seem pretty low at 36%. Even so, it would still make sense. Sounds like a good one.
@Terri Pour-Rastegar Wow. Are you including debt pay down as part of the return? I didn't think these kind of deals were real. Maybe because I'm from CA.
- Rental Property Investor
- Charlotte NC Fort Mill SC Lake Wylie SC, SC
- 103
- Votes |
- 174
- Posts
@Josh Justiniano , yeah, I don't think these deals are available in California either. LOL! I pay cash for my investments, and I manage the properties myself, so that helps a great deal. When we first began investing, we obtained our first few properties with financing. However, even with financing still in place, those properties are performing between 14-19%.