34 Units. Worth pursuing this?

Question

Rent average is $600. All but 2 units occupied. C class. 1965. Owner pays water.

What purchase price makes this worth looking at?

Also... any experience converting to metered water? How do I know if it's even possible?

Thanks!

Andrew Schena · Answer

@Luke Carl what is the economic occupancy?  How many of the tenants are paying rent?  Did you get a rent roll and T12?

Converting to metered water can be expensive. If it’s a 1960s asset, you’ll want to make sure there is no aluminum wiring or at a minimum it’s been pigtailed at the outlets and switches for insurance purposes. But you can easily implement a RUBS payment based on a formula. Take 80% of the annual water/sewer bill, divide it by the square footage of the leasable area, and then multiply that figure by the size of the different unit configurations. Then divide it by 12 for each month. That is their non-negotiable monthly utilities charge. It’s paid prior to any lease payment, so if they don’t pay it, they’re then late on the rent because the rent payment has not yet been paid in full.  You implement over the next 12 mos as each lease renews.

Cheaper than installing all new submetering.

Good luck!

Andrew

Ujwal Velagapudi · Answer

<$1M? It's hard to gauge without rough location, tenant history, capex needed, etc. but I'd say somewhere around that $1M range assuming a low teens CAP after all negotiations. Also some C's I've seen are really D's, and some C's can also be in extremely pricey metros. I definitely agree with @Todd Rasmussen also in that so many out of state investors buy out a lot of these C neighborhoods, over paying in a lot of cases or simply getting duped by terrible PM's/sellers.

I have never converted water meters, but had the thought on a 20 unit and 28 unit and was just told not to do it. Was told it'd be too expensive, and not worth the hassle with having tenants pay for it. It was also in a C neighborhood. If water utility can be a lien on the asset in your city, then it's best to have the landlord pay it and bill the tenant.

Todd Rasmussen · Answer

@Luke Carl

50% of what it will actually sell for, lol. I'm jaded after doing diligent research on a few of these to have a fellow west or rival east coaster pay way more than they needed to. There are ways to make money in these market cycles, I know, but the competition in MF in the areas I'm familiar with is driving all the profit out of it.

Luke Carl · Answer

Totally did not expect this many replies than you.

Would any of you like to volunteer to teach me how to read all the numbers on these rent rolls??

Dan Biber · Answer

The purchase price can be dictated by what your goals are and what the play is for this asset.  I'm sure the seller has a price point in their mind, so I would start there and determine what the offer price would make sense in order to execute your business plan (flip, short term hold, long term hold, etc.), expected financial returns.  There are many variables and more assumptions that go into underwriting a deal to determine what it's worth today and what is it worth to you.  For example, I just walked away from a multi-family deal because seller wanted market value for an asset that needed quite a bit of CAPEX work and complete new tenant base. The risk of the deal was increasing with every due diligence discovery, while financial return projections were coming down (discovery of additional CAPEX work needed, etc.)  So, the deal didn't work for me anymore and the lower return projections weren't appetizing enough.  However, another group came right behind me with a completely different situation (1031 exchange money) and paid more than market value with all cash.  I'm sure they discovered the same issues as I did, but their underwriting was quite different than mine.

Agree with not installing sub-meters, rather just charging a flat rate for water.  1 bed is X.  2 bed is Y, etc.

Thanks for reading.

Dan Biber

Steve Morris · Answer

Well, see if you can get I&E and figure some performance metrics like CapRates, Cash-Cash, GRM, etc.

Worst case, figure a $/SqFt - Which is actually pretty consistent, simple and easily verifiable.

Then get comps and compare those to figure a market price and if you can make money.

Bjorn Ahlblad · Answer

It would be worth a closer look if one thought it might go for even 40k per door but you just know someone will pay up to 60k+ in today's market. The 600 dollar per month tenant will be a pain. Is it a candidate for reposition? Keep us posted.

Jill F. · Answer

Need more info-- location? number bedrooms? baths? central ac/ptac? garages/parking? in unit/on site laundry? age of roofs? private/common out door space?

34 Units. Worth pursuing this?

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