Practice Multi Family Analysis 1

[John Warren]

Hi BP community!

I am getting ready to, hopefully), buy my first commercial sized apartment building this year. In preparation, I will be practicing my underwriting skills on a closed multi deal in my target area every day. Today will be my first attempt, and I would love to get feedback on my analysis from you more experienced folks here. This deal is coming of the MLS, which I have access to as a broker. I am trying to figure out which parts of this pro forma data are completely out of line. This property was purchased by "Belgium Investments", so I doubt this is mom and pop group! Here it goes!

Property address: 5010 W. 18th street, Cicero, Illinois

Sold price:  $665,000

Units: 19 1 and 2 bedroom units.

Rent Range: $600-775 (The MLS does not specify individual unit prices)

Gross Income: $164,700 (This seems really, really high... less than 1% vacancy in a C-/D area seems highly unlikely to me!)

Expenses: $52,355

-Janitor $400

-Water $11,000

-Repairs- $1000 (This seems so unlikely for a 19 unit!)

-Fuel- $10,200

-Scavenger- $2740

-Electric- $1800

-Insurance- $4400

-Taxes- $20,815

Net Operating Income: $112,345

Pro forma cap rate=17

Here is my take away from this. I believe that the expense are way too low. I also think that there are numbers missing. Obviously no property management is considered, but there is also no mention of snow removal or landscaping which I found out. The janitor expense seems interesting as well as I am not sure who charges $33 per month to clean a common area...

Here is what I would guess the building really looks like:

Gross income minus 10% vacancy factor= $148770

NOI using the 50% rule= $74,385

True cap rate then would be 11.4. Not bad, but not as rosy as the pro forma. So how did I do? Let me know your thoughts!

[Nuno Leitao]

or actual expenses from the property...