Analyzing the deal: 55 Unit complex in MA

[Samantha Magina]

I've done my homework and I can now analyze a small multi-family (2-4 units) in a few minutes. I'm working on getting my first deal. That said I'm quite enjoying the BP podcasts where folks just jumped head long into partnerships and/ or syndications for larger apartment complexes. I had this property catch my eye while I was perusing the MLS for fun.

This property is a 55 Unit in Foxboro, MA with a mix of 1, 2  units, 1 and 2 BR units for for between $1645 and $2400, according to rental information available online, rent.com indicates 8 units are currently vacant. For the sake of my analysis I'm going to assume all units are $1700/ month so that it is conservative. 

List Price: $11,000,000

RE Taxes: $89,582

Gross Income listed at $38,100 so lets assume that is not correct information. 

My assumptions:

At least 1 on site manager and 1 FT or 2 P/T / On-call maintenance staff, with outsourcing of lawn care, snow removal and possibly items such as unit turnover (paint, flooring).

I (and lots of my closest friends, business partners) fund 10% of this deal and I get a loan @7% for the remaining 90%. 

Income (@ current occupancy of 85%) =                             $79,475

Expenses:

2 FT employees ($20/ hour*320) =                                         $6,400

Mortgage =                                                                               $65,865

RE taxes =                                                                                   $7,465

Monthly Net Income before R&M, Insurance, CapEx and Vacancy . = $-255

I don't know how to properly estimate R&M, Insurance, CapEx and Vacancy but just the expenses above indicate that the 11 million price tag is far too high for my taste.

Who want's to explain to me what I am missing to analyze this deal? 

[Kyle Jean]

You're not missing anything. We finance large apartment buildings throughout New England and I'm located about 30 minutes north of Boston, so I'm pretty familiar with the market. As-is you're buying a property for $200k per unit, which is a hefty figure even in MA. For those costs you could likely build in a better location.

If I had to take a guess, I'd say the seller is probably trying to off-load his asset at the height of the market and there are major capital improvements that will come due in the next 5-10 years. A good apartment building should operate at higher than 85% occupancy too - many times when sellers are trying to off-load a property they'll throw in a bunch of lower-grade tenants to try to fluff the numbers. Try to get a copy of the rent roll and see how long people have been in each unit.... 

If your heart is set on this building, you could put it under contract subject to a PCNA report and further due diligence, but my gut tells me it's a pass. Financially it doesn't work with your own figures, and when a lender or bank applies even more conservative metrics, I think it'll be tough.