Looking to get into apartment investing

[Ricky Brown]

Hey Bigger Pockets friends,

I have heard many stories about people getting into rental investing through apartment complexes and would like to acquire a few myself. I have listened to many podcast and read similar stories of people practically stumbling into apartments and getting the financing for the deal through various means, like private money lenders, commercial loans, seller financing, etc... I am looking at a few apartments right now in my area that I would like to get as my first apartment complexes and would like to hear what other experts have to say about how to get the financing for the deal and how to make a good analysis of the property to make sure that I am not missing anything.

First, the property is 18 units in 3 buildings. I received the profit and loss standard sheet for the year 2015 and looking to get an updated one for last year. It looks like the property is netting a little over $21,000 a year after all expenses with total income being $97,813 gross and no additional income from other sources. I am doing all the research I can to analyze the deal but I am having some trouble getting many comps for properties like this due to my town being pretty small and not having a lot to go on. I also received a rent roll statement for last October when I first contacted the person selling the property. It showed $8,245 in rent for the month, with 100% occupancy rate at the time and a payment of $2500 for the month. He said the units stay full most of the time due to high demand for rental units in the area. Rents are between $300 and $550 a month, depending on the unit I assume. Most are month to month basis and some have a lease in place. Property taxes are showing about $4400 for the 2015 year and insurance running $6100 for the year. It shows a management fee of $1600 for the year (which seems lower that what I would have expected) and a maintenance and repair cost of $5,929 and material and supplies for $8,867. There is a list of all the expenses for 2015 included on the profit and loss sheet as well. I'm not sure how I could upload the PDF of the P&L sheet, but if that's possible, I can do that for extra help showing the expenses. 

The listing price is at $899,000 and the agent says that the seller is motivated and make an offer. I am not sure where to get financing for something like this and do not currently have a down payment for a loan. I am open to any suggestions to get the financing and possibly a second loan, or private money or something, to cover the down pay. I have contacted the agent about the seller financing and if he has any options for funding the deal. The price seems a little steep in my opinion, however, I am not really experienced in valuing apartments like this and that's why I am here asking for assistance. How do I compare the cap rate if there are no other like-properties around to compare it with?

I really appreciate all your time and help in advance. I have been studying real estate investing a little while now and I'm ready to jump in and get some units under my belt. I have one so far and became a Realtor to accelerate my progress. I would like to turn this into a great success story of how I got started investing in apartments and I believe I can make it happen with the proper guidance. Any help is greatly appreciated. Thanks much.

Ricky Brown

[James A.]

Hey @Ricky Brown great to hear that you are really diving in head first. I have a background in commercial real estate information and the first thing I would caution is that always assume the numbers are being fluffed up. But just looking from the information that you have wrote here just off the top a big red flag is the NOI. Unless you are reading something wrong you are saying the the property in 2015 was Netting 21K. Taking the 21,000 and dividing it by $899,000 get you to a cap rate of 2.33%, that is extremely low. Just google cap rate and you can learn more about the specifics. Also the relationship between the gross income 97K and the net 21K they are wasting alot of money somewhere to be only keeping 21K. If the numbers are accurate something is very off. My suggestion is if you are really serious about commercial take some more time to learn. It is great that you are looking and trying to understand and analyzing deals. I would suggest finding someone local that is doing commercial and picking their brain; try to be a sponge and soak up as much knowledge as you can. I hope some of the information helped. I always recommend listening to the pod casts they have some great guys that are doing commercial and you can pick up a lot of basic knowledge. Good luck! Am always open to answer anything i can.