Wanting To Jump Into MFH. How To Know If I Have A Good Deal

[Chris Nwoke]

I've been involved in the SFH game for a while and have had some success with it. But lately, I've had a strong desire to jump into investing in multifamily units. I'm currently reading the book Multi Family Millions and gaining a stronger grasp on how things work.

The biggest thing I learned since getting involved with real estate is that hesitating to take action is the worst thing you can do. After I close my most recent wholesaling deal today, I want to really go in with this. I've even been in contact with a guy who works for a hard money lending company that specializes in commercial properties so finding financing won't be as big of an issue. The main thing now is finding a deal.

So a few days ago, I ran across a craigslist ad for a 100 unit apartment in Atlanta. The owner is out of state in CA and wants to get rid of the property. The asking price is $1.7 million, occupancy is currently 71%, and the cap rate is 10%. The surrounding area is something I wanted to pay attention to. Wal-Mart plans to open a new store nearby. And the North American Porsche headquarters are moving their facilities from Sandy Springs to this area. Both of these things will bring new jobs to the area and possibly more tenants looking for a place to live.

Is there anything else I need to look for to determine if I should make a move on this? Obviously, there are things like repair issues that would be looked at during the due diligence period. But is there enough here to even make this worth looking at? And if so, what's the next step?

[Clay W.]

Thanks, indeed, for the replies - (*this forum is sure a great medium...*)
---

To recap and further clarify on the issue of trying to value a property that has a multitude of deficiencies (high current vacancy, repairs, etc.):

Let's assume that the subject property is, indeed, a multi-family apartment complex. And all else being equal, it is the "highest+best use" for the structure/property going into the future.

If we are performing due-diligence and trying to account for bringing the property "up-to-par," how would you approach items/issues that might be further down the road. For example, upon reviewing the property and adjusting for Will's example of the need to place 40% with new tenants, we find out that there will need to be new water heaters replaced in three years. Perhaps there also needs to be a new roof, but not for six or seven years down the road. The seller might tell you that every roof needs to be replaced "down the road" as do water heaters and given this, he doesn't see the need to offer a "discount" for future repairs/capex.

So, other than discounting the typical needs of stabilizing a property from the beginning and unless something significant (like a roof, etc.) needs to be repaired/replaced pretty much at the time of ownership change, how far into the future is necessary to calculate on a pro-forma and to evidence a seller about its significance?