84 Unit - Deal Analysis Case Study

[Scott Skinger]

This question is for you seasoned mf investors out there. I'm trying to learn more about how you might look at property so I can refine my own criteria and become more efficient in my analysis. For this example, let's assume that the building(s) fits my criteria (25-100 unit building with a minimum NOI of $150K, cash flows, local to me, etc.) and the numbers work. I would like to know more about the other factors that you consider...good and bad.

The example building is on Crexi, https://www.crexi.com/properties/95716. Again, I'm not asking if this particular deal is good, just using it as an example to ask some questions that have come up several times before in my head.

-located in Mt. Pleasant, MI a town of 25K people, an hour away from a bigger city...instant deal killer?

-2nd biggest employer is Central Michigan college...good/bad?

-a mile away from campus, I'm sure that there are students and residents living there, any thoughts?

-84 units in 20 different buildings...a lot more R&M, capex versus one building?

-there are 6 vacant lots on the parcel to "build more units"...it is pitched as a benefit, perhaps it is not, will cost more in taxes, maintenance, insurance, etc.

-it doesn't say anywhere in the listing or OM, but there are a few more buildings in this complex that are not part of this deal, I'm assuming that there is association as expenses like landscaping, snow removal, etc. are not mentioned. Outside of the added expense to consider, are associations inherently bad?

-anything else that you see to consider when looking at a property?

After typing this all out I realized that I'm asking for a lot...so maybe just answer one or two of my bullets if you can. Thanks in advance!

[Gino Barbaro]

@Scott Skinger

Isn't it funny they even put "Proforma" Cap. Who cares?  What is the actual cap rate.  Last 12 months of P&L.

Biggest question is "Why are they selling". You need to gauge motivation and see how you can solve their problem.

Associations can be an issue. What happens if the other members don't pay dues. What is the recourse.  This issue needs to be investigated now and heavily during due diligence.

Ask these brokers if they have any more deals.

25k people is not bad. Find out occupancy rate in the city to determine demand.  You also need to find out typical tenant and what the unit mix is and the rent they are paying.

Finally, contact a mortgage broker/banker in the market to determine what it would cost to run this type of property.

Curious to see what they are running it at.

Also curious to see what the property is priced at an actual cap? 5?

Speak soon Scott

Gino

great questions for next week's call