Help analyzing first apartment deal

[Brad Noe]

HELP!

I will try to keep this as short as possible...I've been investing for a while now but have only dealt with SFR's. I have recently uncovered an off-market deal on a 29-unit apartment complex and need some help looking at the numbers and the potential pitfalls.

A little background info: this property has been in a state government-backed tax credit program for low income housing. It is a 15-year program and it only has two years left. Once out, the owner says there is great value because now we can go after market rents. I am skeptical, however, because it is in a blighted area so I don't think we can get much more than they currently are getting. Otherwise, the property has been IMPECCABLY maintained, especially for the area that it's in. And it's an old brick-and-mortar school building so it is solid as a rock, and another plus is it is fully fenced with secured entries.

Two things I am uncertain about are the details of the government program it is on, what it takes to stay in/get out, etc. The other being the financing piece. The owner says that we would assume his existing mortgage in which he owes roughly $16,000/unit @ 7.75%. Then he would add another $12,000/unit on top which we would have to come up with financing for. Why would he say that? Why wouldn't he just offer us the total amount of the two combined ($28,000/unit), so we can get one loan for the whole deal and pay off his mortgage and he keeps the difference, just like buying a house?

Here is the quick-and-dirty analysis:

Current income (6 vacancies): $10,034/mo.

Mortgage on existing note: $4,142/mo.

Taxes: $566.67/mo.

Other Fees and Permits: $125/mo.

Insurance: $1,000/mo.

Maintenance (2016): $2,300/mo.

Cash Flow: $1,900/mo. or $22,800/yr.

At full occupancy, income would be $13,184/mo., making the Cash Flow $5,050/mo. or $60,600/yr.

Assuming we pay all cash for the $12,000/unit ($348,000) that he is asking, ROI would be:

Cash On Cash Return: 6.5% (as is) or 17% (full occupancy)

Cap Rate: 9% (as is) or 14% (full occupancy)

Thanks in advance!

Cheers

[Joel Owens]

Seller might have a huge pre-payment penalty on his mortgage note and does not want to break it.

On the tax credit program if over the last 13 years the area had started to blossom and good growth went up around it with better incomes and lower crime then you might have something. If on the other hand based on your post there is 2 years left on a 15 year tax credit term and the area is still a crap hole then really not that great.

This does not sound like a deal. Maybe assign to someone else to buy and take a fee so you do not have the downside risk?

No legal advice given.