How much would you pay for this 32 unit? got all the #'s.

Question

32 unit brick. Great occupancy. C+ area. I am very familiar with area, I own other smaller multis and SFH's in same neighborhood.

Current owner seems to keep building in great shape. Well taken care of.

Mechanicals seem to be less then 10 years old.

Heat and hot water is provided via electric baseboard heaters and electric water heaters. Electricity is metered individually to each unit.

monthly rent $500 ( somewhat low for the area, 525-550 is doable)

monthly water= $600

Taxes yearly= 18,000

Insurance= no idea?

snow/lawn =250 monthly

Random maintenance= $3,000 monthly

I would be managing myself. Whats a fair price? They are asking $950,000.

Account Closed · Answer

@Mike Wallace

What city is this in?  How old are the roofs?  Does the parking lot need work?  Are you planning to renovate units or simply raise rents as leases expires?  Do you have experience managing?  Are you going to take a management fee?

What is the current occupancy of the property?  How have collections been on the rent roll?

Will the property be re-assessed upon a sale?   If so, what is the tax liability exposure?

How do you plan to finance this property?  How much will you put down?

As you can see, it's hard for anyone to give you a remotely accurate idea of what the property is worth without knowing more.  That said, a VERY QUICK back of the envelope looks like the following:

Gross rent = $500 x 32 x 12 = $192,000/year

Less 15% for vacancy, loss to lease, etc = 28,800

Effective Gross Income (EGI) = $163,200

Less 60% operating expenses (you said C+ location) = $97,920

Net Operating Income (NOI) = $65,280

Value at 10% cap = $652,800

Value at 8% cap = $816,000

Keep in mind, this does not include reserves, upfront capex, etc  $950,000 seems pretty high to me.

David Schach · Answer

thanks for that clarification.

David Schach · Answer

Ive always seen CAP Rates calculated by Gross Rents, not on NOI. I am mis-reading Cap Rates as published on listings?

Account Closed · Answer

@David Schach

when valuing apartment buildings, cap rates are calculated using NOI, not gross rents.

Cap Rate = NOI / Sales Price

Mike Wallace · Answer

The 32 unit is in the city of Wayne. I own/manage 9 units in this same area.

Ken P. · Answer

Mike,

At first blush $30k per door in metro Detroit in a C area sounds high as an asking price. We bought  in Dearborn Heights for $22k/door, with similar rents at purchase.  With renovations, total investment will approach $30k/door, with all-new furnaces and central A/C, new windows, flooring, etc., but we're deferring cash flow and paying for upgrades as we go rather than financing the upgrades.  Rents are now all at $550/mo.  However, you need to offer based on the condition and rent numbers as they are now, not what they could be after raising rents.

Send me a PM and I can connect you with a local insurance agent who can quote apartments.  He's active in the metro Detroit REIAs and is well-known by area investors.

Make sure this is absolutely what you want to do, b/c with 32 units in a C+ area (which burb, BTW?) you'd be taking on a heck of a big job, unless you already have a team and a system in place (office staff and maintenance person and established relationships with contractors).

Patrick L. · Answer

Many people trying to sell you a bad deal will display it that way so you think you're getting a good return.

Andrew Wydra · Answer

Plan for the worst and hope for the best. The numbers Sean put together don't look appealing but you honestly need to find out more info. Ask for 2013 and 2014 rent roles and expenses. Also- are there any value add aspects on the property (ie garages that aren't be rented or the ability to create more cash flow with laundry facility)?

Mike Wallace · Answer

its difficult to find comps for larger multis, most arnt listed on the MLS around me.

Patrick L. · Answer

Even if you're going to self manage you need to factor in management costs.  It's 32 units and not a single family home, this is a job.  Do you work for free?  I don't.  What if you don't have time to manage it anymore or become unable/unwilling to do so?   Always factor that cost in, at least that way you're compensated for your time.

I'd have to look at what multiples other properties in the area are selling for but that seems very over priced to me.  I would be around $700k based on those rents but I don't have full information.

How much would you pay for this 32 unit? got all the #'s.

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