Deal Analysis: 40 Unit in Middle Georgia

[George Paiva]

Finally found something promising in one of my research markets. 40 unit mix with 9 buildings. Current owner has owned it for 10+ years but has pulled cash out of the property. Has two mortgages on it about $95k annually. I also think his operating expenses are a tad high with some repair contracts he has in place.

I have a Property Manager meeting in next day to chat a little about the current marketing and more detail on the expenses.

We have submitted a LOI of $975,000 at this point.

Cost Assumptions

Strike Price $1,050,000
Property Value $1,281,293 (Improvement $1,030,429, Land Value $200,000, Accessory Value 50,863)
Closing Costs $31,500 (3%)
Cash in $346,500
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Financing Assumptions

Downpayment 30%
Finance Amt $735,000
Downpayment Amt $315,500
Interest Rate 6.0%
Mortgage (Years) 20
Mortgage Payment $63,189
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40 Unit Mix

18 - 2 Bedroom 1 Bath Townhouse
8 - 3 Bedroom 1 Bath Flat
14 - 3 Bedroom 1 ½ Bath Townhouse

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Revenue Assumptions using current rent roll

Gross Potential Income $292,920
Gross Operating Income $263,628 (10% vacancy)

Actual Income

2012 $251,000
2011 $282,378
2010 $271,791

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Expense Assumptions
50% rule $131,814

Actual Expenses

2012 $166,245
2011 $144,825
2010 $142,500

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Cash Flow & ROI

Net Operating Income $131,814
Capitalization Rate 12.6%
Monthly CF Per Unit/Door $142.97
Break-Even Ratio 74% 5 years
COC Return (CFBT/ Acq Cost) 20%
Debt Coverage Ratio (1.5min) 2.09
Principal, Interest, Taxes, Insurance (PITI) $96,462
Ratio (1.2min) 2.73

Need to also get a good walk through of the property to gain better insight into condition and any deferred maintenance needed right away.

Its not a steal of a property but a decent deal and from what we found out so far a lot of it has been updated in the last 3-4 years. We were provided a walkthru video of the outside. Need to get a better idea on the inside.