Apartment Curious

[David Wolf]

Hi All,

I don't think I have really ever posted on this board but have read it for years. This forum has given me great advice which has allowed me to purchase a few SFR's in the middle Georgia area at great prices. Now I am researching the feasibility of apartment buildings but have a few questions.

Quick Bio: I am 31 years old and have served 11 years in the military stationed at Robins AFB, GA. Currently I have about 250K liquid which I would like to put to use other than the stock market.

Anyway, I was looking at at an apartment renovation project which I found on Loopnet. This property consists of 42 condo style 2br/1.5 bath units(1300 sq/ft). Currently 5 of the units are rented at $550 and 36 of them are completely trashed. I drove by the property and I mean they are trashed. They would require HVAC, wiring/plumbing, carpet, kitchen etc.. Essentially a complete rehab.

The positive points are that this apartment was at least semi rented not that long ago. I have gone back in satellite historical imagery and just took a look at the car count. In additional 5 of the 7 buildings had new roofs installed within the last 5 years. Overall this complex just looks like it has completely suffered from owner neglect. The owner also has a few other properties in the city(thanks tax records) which are in similar disrepair.

The owner is asking about $300,000 which is probably too much for the state the property is in. While I have not had a general contractor walk the property I am estimating that each unit will require approximately $15,000 in repair. In addition the property would require a security gate/fence, parking lot resurfacing, and lots of landscaping.

Financial Data – I have created more detailed spreadsheets to model this out but here is a quick overview.

Price: $150,000 (thats what I would probably offer the owner)
Renovation: $525,000 (units) + $75,000 (miscellaneous items)
Total Cost: $750,000
Pro Forma Rent: $277,200
Expenses: $138,600 (estimating 50%)
Net: $138,600
Cap: 18.48%

Obviously the above numbers would be excellent. However, this does not take into account holding costs while the property is renovated and stabilized. In addition the expenses are a complete guess as it is hard to estimate with a near empty complex.

Enough with the background and on to my probably simplistic questions:

Financing Questions
Obviously a bank would not give a standard commercial loan on this project as it is not stabilized.
Financing possibility
a. Commercial Construction Loan - What do you think the chances are of obtaining a construction loan to rehabilitate and stabilize the property. After it is stabilized refinance.
b. Hard Money – Huge risks with this. What happens if you only have 50% rented out after a year? Would it be possible to get a typical commercial loan on the amount owed to the hard money lender? The property would have no problems paying the loan at this occupancy rate and still have 50% for expenses.
c. Any other financing options?

I could go one but I think this is enough for one post.

Thank You,

David