New to Multifamily - Does these numbers (expenses specifically) look realistic?

Question

Apartment building Analysis

60 Unit

Price $725,000.00

Upfront Repair Costs $500,000.00

Total initial Investmen $1,225,000.00

Down Payment10% $122,500.00

Interest Rate 6%

Loan Length (Years) 15

Payments per year 12

Monthly Payment $8,604.07

# of Studio 0

# of 1 Bedroom 36

# of 2 Bedroom 24

# of 3 Bedroom 0

Rents:

Studio

1 Bed$575.00

2 Bed$675.00

3 Bed

Maintenance Fee $35,000.00

Managemnet Fee $45,000.00

Cap X (2%?) $24,500.00

Taxes (3%) $36,750.00

Insurance (2%) $24,500.00

Vacancy Rate (5%) $61,250.00

Utilities $30,000.00

MonthlyRents $36,900.00

Yearly Rents $442,800.00

Monthly Expenses $21,416.67

Yearly Expenses $257,000.00

Monthly Payments $8,604.07

Yearly Payments $103,248.83

Cash FlowMonth $6,879.26

Cash Flow Year $82,551.17

Cash on Cash Return 67.39%

Cap Rate15.17%

Joshua Woolls · Answer

Well, that formatting took a turn for the worse when I posted. Let me see if I can clean this up.

Michael R. · Answer

Don't forget you can plug these into the BP Calculators too.

I hope that helps.

Joshua Woolls · Answer

My guesstimates put me at 65%. It looks like I have a showing this week and will get some more info. Thanks for the input.

Jordan T. · Answer

I've heard of that before @Joshua Woolls, as long as the seller will subordinate their loan to the bank so that the bank maintains a 1st lien position.  You'll need to clear that with the bank first, but they might be happy with it as it lowers their LTV, lowering their risk.

Joshua Woolls · Answer

Is it ever possible to have the seller finance a portion and have the bank finance a portion?

20% Seller financed

10% Buyer Cash

70% Bank financed?

I have cash and I have a partner with cash, but I have some other things that I would like to use that cash for if I can.

Joshua Woolls · Answer

I can do 20% down if need be. Will be talking to the bank this week.

Changed my vacancy rate to 10% (I use 5% for my SFRs). I would guess multifamily are higher?

I appreciate the input. I will follow up after I have seen the unit this week.

Joshua Woolls · Answer

I haven't even seen the unit yet. I was simply using 8000, as I can typically do a kitchen, bath, paint and carpet for around that in a small single family and I was factoring economy of scale in and guessing I could go a little below. I am not sure what the windows/heat/electric look like yet. From what I can see it does not look too bad. I will follow up after I have seen more.

Nick B. · Answer

10% down is not realistic unless it's a seller finance deal

5% vacancy is too low. Assume at least 8% physical and 8% loss to lease.

15 years term is too short. As a general rule, you want the maximum possible term, not the minimum. The longer the term, the higher is the cash flow.

You also need to budget for payroll, marketing, administrative, and make ready expenses.

Tony Hardy · Answer

The first number that strikes me as odd is the estimated repair?  Where did it come from?  What does the property need?  Why is it $8,333 per unit?  You can spend that in the kitchens and baths?  How old is the roof, is the plumbing in good working order?  Galvanized it copper, what's the deal with the electric, windows, heating system.  Where is the vacancy factor, management expense, reserve for replacements of things that break like fridges, stoves...  Can the real cost of repair be 15K or 25 per unit?

Gary E. London · Answer

Without doing the math your expenses for a building that size should be in the general range of 45% - 50% of your GOI (Gross Operating Income). If they are below or above that range it doesn't kill the deal it just means you have to ask some questions of the broker or seller.