Valuing an Apartment Complex

[Steven Skinner]

Hi everybody,

I wanted to provide the forums with some general information pertaining to an apartment complex + 1 house I'm considering purchasing. Each of you can do your own math and figure up what your offer would be for the following property (I'm still perfecting my ability to accurately assess larger multi-family properties, so it's fun to brainstorm). We'll use the following:

• 13 apartments (small units w/ low rent) + 1 house
• $45,000 annual rent ($3,750/mo)
  • $1,500 taxes ($125/mo)
  • $2,800 insurance ($233.33/mo)
  • 8.33% or 1-month vacancy ($312.50/mo)
  • 5% maintenance, 5% CapEx ($375/mo)
  • $1,000/mo mortgage
  • $375/mo water, sewer, garbage
  • $300/mo electric
  • $100/mo gas
• Extra income from laundry ($5.00 wash/dry) we'll say $50

I'm not sure if the insurance is entirely accurate as I haven't obtained a quote yet, but I placed it at $200/door to reach a rough estimate; use different numbers for your own math if you disagree. These units are small, so potentially much cheaper. All units are currently occupied, am using 1-month as potential vacancy (has a history of filling much more quickly, very convenient location). The 10% allowed for maintenance/CapEx is plenty sufficient based on condition. Plans to alleviate utilities from landlord's list of bills as soon/smoothly as allowed, but should be factored in for now. I consider these all "better-safe-than-sorry" numbers. The property will be managed by landlord.

And yes, before anyone mentions it, I realize I haven't provided a CAP/GRM or anything of the sort as it would apply to the subject area. I also realize everyone has a different cash flow number they would like or expect to see. I'm not necessarily asking for direct advice on a purchase price, but rather, your opinion (based off what information you have at your disposal) of what you would offer; preferably your maximum offer, nothing including negotiation fluff. Let's have a bit of fun.

Thanks in advance for any contributions!

[Andrew Johnson]

Steven Skinner Average rent of $288 per unit? You can't use percentages like you're trying to when it comes to this kind of a property. Your cap-ex holdback per unit is $172 per year. Unless you have a brand new roof, brand new HVAC, brand new appliances, concrete floors, etc. you'll be upside down in cap-ex extremely quickly. So, just one guy's opinion, your numbers are completely wrong. Not to mention that at $288 per month (less for the non-house) you will tend to get "tenants of last resort". So wave goodbye to rigorous screening, evictions, issues with rent collection, the occasional $5K unit turnover, etc.

My suggestion: Look in the forums (it's been talked about) for the challenges inherent in running <$400 per month rent units, impacts to financials, etc. Price (in this situation) is secondary to effective management.