30 unit apartment deal help/analyze

[William Pickett]

This is the first look and serious attempt and getting an apartment complex me and my partner have found. Confused on the numbers of course. Need some bigger pockets expert advise. 

Seller price is: 695,000         30 unit building built 1914

20% down payment seller may carry

Rental income: 10,900

Property taxes :9868

Property management: 10771

Maintenance and repairs yr: 11,381

Advertising: 500

Utilities 23,000

lawn care: 670

Average market rents in the area. C-B- area white collar 400 to 700.  mostly I see 575 for 3 beds nicer places.

this is a mix unit building 1, 2, 3  bedroom one bath. only  a  couple have laundry hookup.  Small laundry in basement.

Thanks for any experienced investor looking at this.  

How do we value the property? 

[Andrew Johnson]

@William Pickett Taxes you can (probably) figure out yourself online looking at the county assessors office.  That will tell you: 1.) the assessed value, 2.) if they are paid current, and 3.) if you could be looking at an increase if they reassess on sale of the property (I don't know how Tennessee does their scheduling).

Just to clarify, you're saying that the scheduled rents are $10,900 but you don't know what the actual collected rents are?  It's odd they would have the maintenance/repair costs literally down to the dollar but not show the collected rents.  You might be able to back out a number if you know the property management costs.  If there aren't releasing costs and it's a straight percentage of gross (collected) rents you could figure it out pretty easily.  If the contract is for 10% then you know that annually they collected $107,710.  Scheduled rents would be $10,900 * 12 = $130,800 so you're basically getting occupancy numbers around 82% or (another way) 18% vacancy.  This is an overly simplistic back-of-the-napkin guess and might not be anywhere near reality.  However, it might mean that you'd have to improve the property (and not raise rents) to "fix" vacancy issues first.  Then raise rent to capitalize on a property that is (subsequently) more "in-demand".  

For what it's worth, in small towns (or even slightly larger towns) apartments can develop reputations.  It's why you see (in my opinion) signs slapped on buildings that say "under new management".  So I'd be cautious about thinking how long it will take you to get quality tenants, raise rents, keep quality tenants, etc. when it comes to a payback period for that $30K in deferred maintenance.

I think your first step is looking at the deal with the mindset of an investor using 25% down and getting a commercial mortgage.  See how it cash-flows with a 20 year or 25 year amortization rate as it sits today.  Even it's a "solid deal" with more standard financing then seller financing could be a benefit.  But I wouldn't let seller financing push me into doing a bad deal.

For what it's worth, you might consider getting pre-qualified regardless.  Trying to negotiate for seller financing (if it's your ONLY option) probably puts you in a different state of mind that if it's just a "bonus".