Deal or No Deal-52 Unit Apartment Complex-South East

[Ira Sullivan]

So my 12 week goal is to purchase an apartment building with 34 or more units. I’ve come across the following deal. This deal is in Alabama. I’m about 2 hours away. I plan to hire an on-site manager and maintenance man. Please let me know what you think.

The 52 Units consist of 12 Buildings. This is a Class C Property

Asking Price: 1,550,000

Estimated Rehab: 650,000

Average Cap Rate: 8%

16 of the 52 units are currently occupied bringing in over $11,000 a month.

This would be a major rehab. New roofs, flooring, paint, exterior upgrades—Parking.

Cooling-Window AC

Heat-Gas Furnace

City Water and Sewer

Owners Pro Forma:

ARV: 2,860,000

Gross Income: $433,000

Annual Expenses: $99,000

Expenses: Property Taxes, Gas Bill, Insurance, Maintenance Reserves, Water and Sewer, Property Management

[Arn Cenedella]

@Ira Sullivan

Congrats on tracking down a possible purchase in a very competitive multifamily market.

Would this be your first multifamily purchase?

If so, I would have strong reservations about this being the right deal for you. This is a severely distressed non functioning property and unless you are an experienced MF operator or bring one on board, I would be very careful. I have invested in real estate for over 40 years and this is not a deal I would tackle.

A couple detail points:

1. There is no way actual expenses will be $99,000 with a potential gross of over $400,000. Without knowing anything about the property, the expenses should be estimated at 50% of the gross so over $200,000. $99,000 isn’t going to happen.

2. Given your characterization of the condition, the rehab budget of $650,000 $11,000 a unit seems low. A medium grade unit interior cosmetic uplift will cost $5,000 per unit.

3. Generally one needs at least a 100 units to have on-site staff. Below that, it is simply too expensive to do so. 

I do not mean to discourage you but you asked for advice and I offer my two cents.

If you are an experienced multifamily operator, that’s one thing. But if you are new to multifamily which appears to be the case from your stated goal, I don’t think this is the ideal first property to buy.