20 unit deal analysis in Wisconsin - specifically Waupun

Multi-Family and Apartment Investing
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20 unit deal analysis in Wisconsin - specifically Waupun

Dave CarpenterPro Member
Investor · Cedarburg, WI · Member since 2013 · 439 posts · 150 votes

Good afternoon BP world. I have looked at a property that I am interested in offering on. I thought I would get some input from the group first. Here are the details:

20 total units in 2 adjoining buildings. One is 8 units, the other 12. Both consist of 1 and 2 bedroom units in reasonable shape for a 1960's building. Nothing fancy though. 

I have been through the property and nothing too scary was found.

  • Owner is asking $815,000 for the package. 
  • Current rent is $9588 per month at 75% vacancy
  • Potential rent is 12,287 at 100% occupancy
  • Expenses before mortgage is $6399 per month

The current tax assessment is $428,900 and has been for 5 years. I expect it to go up significantly after it's sold.

The seller has passed on offers under $750k so I think I will have to come in at least at that price. 

I will be using equity in current properties to fund the down payment and some repairs. 

All the information can be found at the link including rent rolls etc. 

http://www.crelisting.net/A1e3ePG3g

My first offer will be seller financing as it sounds like the seller may be willing to entertain that. I'd offer about $800k if he is open to fully financing the sale. 

If he is not willing to fully finance, this is what I am thinking:

$750,000 purchase price

$50,000 set aside at closing for deferred repairs including painting car ports, repairing parking lots, porch repair, painting vacant units, upgrading vacant units (including reglazing tubs)

10% second mortgage carried by seller to go towards down payment - buyer brings 10% for down payment

second mortgage at a rate of 4.25%

Amortized over 25 years with a 5 year term for first and second mortgages

Rental guarantee of 95% occupancy for 6 months. Total value at current rents of $2305.05 per month x 6 months for a total not to exceed $13,830.30

Inspection and Finance Contingency

Feedback is appreciated!!!

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Peter B.
Investor · Ogdensburg, WI · Member since 2016 · 273 posts · 351 votes
10y

I looked at a very similar building in Wautoma last year (it also had new boiler and new roof). It was fully occupied and sold for less than 30k per unit....I bought a  modern twenty unit complex last year in Waupaca. 36k per unit. 3 other modern complexes in my area sold last year for less than 40k per unit.. My point is this will not sell for 800.. So let it sit. The 70k exspenses (my 20 unit is about 63k) seems high. So I would go through and see what you could improve there. I wouldn't give up on it, but it isn't worth any where near that.

Peter

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  • Shane Baganz
    Rental Property Investor · Saint Cloud, WI · Member since 2016 · 186 posts · 63 votes
    10y

    Dave,

    I see the median rents (2013) were $636

    I don't know Waupun well enough to talk intelligently, but have been through there many times.

    I know the prison brings in a lot of short term renters with family who have "loved ones" in the prison.  That may be a flag for what type of renters you may see.

    http://www.city-data.com/city/Waupun-Wisconsin.htm...

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  • Scott Schultz
    Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    10y
    Rents in Waupun are strangely low, my rule is never pay more than $32k per 2 or more bedroom unit, I don't see how you make money even paying the assessed value for it, but my philosophy is different than others
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  • Chad Nagel
    Rental Property Investor · Fond Du Lac, WI · Member since 2016 · 215 posts · 136 votes
    10y

    At those numbers 15yr barely breaks you even, at 25 yr less than 2k per month with no management fees or capx repairs.  I would not be willing to roll 800k to get less than 2k per month.  I buy rentals to make money, not to create a job/work.

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  • Peter B.
    Investor · Ogdensburg, WI · Member since 2016 · 273 posts · 351 votes
    10y

    I looked at a very similar building in Wautoma last year (it also had new boiler and new roof). It was fully occupied and sold for less than 30k per unit....I bought a  modern twenty unit complex last year in Waupaca. 36k per unit. 3 other modern complexes in my area sold last year for less than 40k per unit.. My point is this will not sell for 800.. So let it sit. The 70k exspenses (my 20 unit is about 63k) seems high. So I would go through and see what you could improve there. I wouldn't give up on it, but it isn't worth any where near that.

    Peter

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  • Peter B.
    Investor · Ogdensburg, WI · Member since 2016 · 273 posts · 351 votes
    10y

    I just looked a little closer at the expenses..They are all over the place.. The heat/electric is really high considering I have the same triangle tube boiler in a  large 16 unit nearly 20000 sq ft. And it is about half that.. Where do you get insurance that cheap???? I pay 6500 for my 20 unit insured for 800.. The taxes may jump 5-7 grand if bought near asking (depending on the assessor).. Assuming all the repairs is for ongoing remodeling of vacant units??? Just thought I would add that as I didn't look close at the expense info the first time. You might have something here if you can sort through those things. Either way I don't think its worth 8.. I think you would need owner financing as I would be really surprised if it would appraise any where near that. Neat old building though.

    Peter 

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  • Dave CarpenterPro Member
    OP
    Investor · Cedarburg, WI · Member since 2013 · 439 posts · 150 votes
    10y

    Thanks everyone for your feedback. One of the areas I don't have a good feel for is expenses, so hearing some of the numbers you all have been experiencing in similar properties is really helpful.

    My broker had suggested that less than 50% expenses ($70K) was pretty good, but @Peter B. you seem to be suggesting that the number is high. As you mentioned, it could be expenses due to remodels, which there has been some of. A few counters and appliances here and there. I will have to dig into that a bit more. 

    @Shane Baganz - I had looked at city-data, but never bothered to compare median rents vs the average rent for the property. It looks like it comes in at about $600 so that seems healthy considering they are not the nicest units in town.

    @Scott Schultz why do you feel that rents in Waupun are strangely low. What are you comparing it to? 

    @Chad Nagel you make a good point. I find that I can do $250 per month on a $50k unit, certainly this building will not get me to that level, but there is also the efficiency of being able to hand off management being all the units are in one place. 

    @Peter B. do you use price per unit as a starting point when evaluating properties? I like that strategy as a way to get a ballpark feel.

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  • Dave CarpenterPro Member
    OP
    Investor · Cedarburg, WI · Member since 2013 · 439 posts · 150 votes
    10y

    @Peter B. i agree with you on the insurance, and not sure why it was so low. I have readjusted to $250 per month.

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  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    10y
    Dave Carpenter Do you have a lender lined up that is willing to allow the seller to carry back? I have not been able to find a lender willing to do this in WI
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  • Dave CarpenterPro Member
    OP
    Investor · Cedarburg, WI · Member since 2013 · 439 posts · 150 votes
    10y

    @Darren Budahn I have not talked with the lenders about it yet. What has been the reason they give you for not being willing if the seller is in the second position? 

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  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    10y

    @Dave Carpenter

    I never  really got a good answer. They basically just said that having the seller hold a second isn't something they allow anymore. I only tried about  5 local credit unions but I had no luck. I didn't even have a deal lined up, I was just looking to see who would be open to it. Let me know if you find a lender who allows this. 

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  • Scott Schultz
    Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    10y
    Dave Carpenter I was a broker in Fond du Lac for 10 years, I have since relocated, one of my investor buyers parents in-law had a significant portfolio in Waupun, we discussed rents there, and when his father in law wanted to sell, we couldn't make the numbers work, due to low market rents, in les it has changed in the past couple years, that town was full of 2 bedrooms for $350-$450/mo. And fairly nice for that. Maybe it has changed, good luck
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  • Peter B.
    Investor · Ogdensburg, WI · Member since 2016 · 273 posts · 351 votes
    10y

    @Dave Carpenter

    As far as expenses go yeah 50% is average... If you hire management out.. The issue was these were really inconsistent. Taxes are really low which you identified..(low assessment).  Heat and electric is probably 6k more than I experienced with similar size building with identical boiler. (lack of insulation? windows not flashed sealed properly?) I guess the biggest question I would have is what is the nearly 35k between repairs, management, caretaker, and miscellaneous exactly being spent on. There is no cap ex figured, assuming that would be in repairs?? How much do you need to figure going forward when your roof, windows, and boiler are all updated??? Like I said if you can sort through that, you may be on to something????

    When looking at complexes I usually work my way back words with price per unit. First thing I look at is roof and boilers big ticket items.. Then I see where expenses are and look for improvements. Then see if there are any easy value adds I can do to increase rents.. (I struggled a little with that with the Wautoma property. The 1960s buildings have some functional obsolescence in my opinion..Where as the buildings Built in mid 90's around here have pretty much identical layouts to the new buildings so when I do upgrades the incoming tenants can't see much difference.)

    Hope this helps.

    Peter

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  • Ron B.
    Los Angeles, CA · Member since 2014 · 12 posts · 5 votes
    10y

    @Chad Nagel

    Can you please clarify? How are you getting break even in 15 years and 2K/per month. Is that net cash flow? When buying such MF properties, what should be the cash flow target (roughly)?

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  • Dave CarpenterPro Member
    OP
    Investor · Cedarburg, WI · Member since 2013 · 439 posts · 150 votes
    10y

    @Darren Budahn I will check with the lenders I am working with and let you know if I find one! Interesting that they say "allow anymore" I wonder if they did in the past, and when they might loosen that restriction in the future?

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  • Dave CarpenterPro Member
    OP
    Investor · Cedarburg, WI · Member since 2013 · 439 posts · 150 votes
    10y

    @Scott Schultz I have done some basic digging on rents (craigslist, zillow) and don't see the price point that low at this point. there are a few in the $500 range and a couple larger nicer properties on the southside of town that are newer, bigger, and more expensive. 

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  • Dave CarpenterPro Member
    OP
    Investor · Cedarburg, WI · Member since 2013 · 439 posts · 150 votes
    10y

    @Peter B. I wonder if part of the high heat and electrical is that this property is 2 separate buildings?

    I have the same curiosity as you do about the $35k in repairs/ maybe CapEx/miscellaneous/etc.

    It seems to me overall, that the value add will be in getting the property fully occupied, possible small rental increase (though not counting on it), and tightening up expenses a little bit. For my purposes, I can also pay myself in the medium term as property manager to help with my need for cash flow.

    One big upside for me would be if I can get the seller to carry all or part of the loan. I would then be able to use my equity on other buildings in the coming months.

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