Multi family need your input before I proceed

[Steve S.]

2 part thread here:

#1 what do I need to learn about before going into multi family

#2 I have an opportunity to buy someone's properties is it a good deal?

So I have experience in single family homes but now I'm thinking I may branch out into multi family. I know what to look for when looking at a SFH. So I'm sure the same things will cross over when looking at structure, windows, doors etc. But I'd like to learn more about what to look for that is specifically related to multi-family.

Right now I'm looking to acquire someone's business. This includes 2 triplexes right next to each other and a 10 unit apartment building.  All 16 units right now yield approx 10K per month. They're asking approx 800K for all of the units. With monthly expenses around 7500 it looks like it may cash flow for around 2-2.5 K per month.

This is all dependent on the expense numbers that have been provided to me.

My question is for 16 units, what would you think are reasonable expense for:

Water, sewer, electricity, insurance, taxes, maintenance & security. I know each property has it's own story with the numbers but I would rather go in expecting high expenses and be happy if it ends up lower.

[Nathan Gesner]

I would investigate further. As Drew points out, this is a really low cap rate which indicates it's not a great deal. At a 6% cap rate, the asking price would be $400,000. However, I wouldn't throw it out the window.

I did a quick search of cap rates for Manitoba and I found this. It looks like ordinary cap rates for apartments runs around 4-5% so you're no too far from "normal" but the idea is to do better than normal if you really want an investment that is leveraged but valuable. Rather than start with his asking price, I would consider starting with a valuation of each individual property and what you would be willing to pay for them. If his asking price has you cash-flowing $100 per door but you want $150, do the math and figure out what the purchase price would have to be to make your numbers work. If his asking price is a cap rate of 3% but you want 6%, crunch the numbers and offer that.

I would also warn that it can be enticing to adjust the numbers just to acquire more doors. Deviating from your norm may get you more doors but it can also be a big mistake. Be honest in your valuation and avoid the Siren's call!

What to check with multi-family? Additional income opportunities like coin laundry, vending machines, storage, or other amenities that may attract tenants willing to pay more and stay longer. Is there room for rents to increase? Are there ways you could cut expenses?

Come back and update us on how it's going.