Older Apartment Buildings

[Jeff Kehl]

I was recently under contract for an older apartment building and have backed out of the deal because of problems uncovered during the inspection process.

I'm now looking at another older building and I'd be interested if anyone has found creative ways to make these deals work other than moving tenants out and completely gutting and rehabbing.

The property consists of 2 brick buildings built in the 1930's one has 12 1-br units the other has 6 1,2 and 3 br units. There was also a more recently built duplex for a total of 20 units.

On paper the numbers looked ok. Gross monthly rent of about $8000, asking price $640k.

There were a lot of things unvovered in the inspections but some of the worst were:

1) The heat for the two big buildings is provided by a central gas boiler. The hot water pipes leading from the boiler were leaking in 20 places the inspector could see and as a bonus were wrapped in asbestos.
2) There is only one thermostat for the building so the tenants on the top floors often open their windows during the winter because so much heat comes off the radiator, as a result the gas bills (landlord payed) can sometime be more than $3000/month in the winter.
3) Some of the electrical panels had been updated but most had not and the wiring was all original fabric coated and would have to be replaced if worked on.
4) The roofs needed replaced.

I could probably use all of this to get the price much lower but it seemed like just too big a project to take on especially when the numbers were good but not great.

Any experiences working with older properties like this?

[Joel Owens]

This would be a PASS onto the next property unless the land was valuable.

The price is grossly overinflated.

8,000 by 12 is 96,000 gross yearly rent divided in half

.50 = 48,000 At a 10 cap you are looking at a 480,000 sales price BEFORE any immediate capital expenditures.

Actually you would be looking at a factor of .60 because of the landlord paid utilities which can eat your cash flow alive.

.60 = 57,600 96,000 - 57,600 = 38,400 net income 10 cap 384,000 sales price.

Your inspection revealed and bunch of deferred maintenance on an old building because the owner has been sucking cash flow out for years instead of making proper repairs. If proper repairs were made the cash flow numbers would be much lower.

Now they have dug themselves a hole and are trying to selloff a dog to an unsuspecting buyer at an inflated price.

This property isn't even close to being a deal.