Need Help Evaluating a Small Apartment Complex

[Brad Gibson]

I'd like to get some help evaluating a small apartment complex deal.  

Some context first.  This would be my first foray into multi-family investing, so I don't know what I don't know yet. I know that apartments are valued by cap rate, but I'm not sure how to figure that as well as the financing for a deal like this one.  Just looking to learn before I leap.

Here are the facts:

Small building with 12 efficiency units.  Would be considered a C property in a part of town that is on the edge of rough and nice.  The building is at 100% occupancy with rents at $450 per month and were just raised in the last 6 months from $400.  Utilities are included in the rent & have run between $800 to $1000 depending upon the outside temperature.

6 units have been redone with six that have yet to be completed.  The current owner has been doing the re-dos as a tenant leaves.  Their rehab of a unit generally runs $700 at most for new appliances, flooring, paint, etc.

The common areas, landscaping, and exterior have been upgraded and re-worked in the last six months.  The building isn't on the market currently.  My current property manager and his brothers bought the building 6 months ago and have done the rehab.  I mentioned to him that I've been looking to start with multi-family a couple months ago and he indicated they want to free up some cash and thought this could be a possibility.

It sounds like they bought this from someone looking to get out.  Have begun rehabbing the building and units to raise the rent and now are looking to turn it.

Thanks in advance for any guidance and help in analyzing the deal.

[Ashley Pimsner]

@Brad Gibson use the rental calculator on BP and use 10 % for vacancy and 5% each for capex and repairs, 8 % for property management, actual taxes, and get a quote from an insurer to gauge policy cost.

Get actuals for garbage, water, electric etc from sellers.

Check the assessor website for assessed value and treasurer website to make sure real estate taxes are accurate.

Plug in 25% down payment at 5.25% on either a 20 or 25 year am which most likely will balloon in 5 or 7 years...if you want a more specific rate contact a few portfolio lenders like small banks or credit unions near the apartment and give them your scenario to find most accurate/favorable rates to input into BP calculator.

Check trulia or www.spotcrime.com to gauge criminal element.

Finally check with commercial real estate agents and inquire about cap rates for similar properties in the area and see how that compares with the cap rate on BP calculator.

That should give you the basics to help you evaluate deal.

PS-Read "Multi Family Millions" by Dave Lindahl.

Good luck!