Help on Multi Family Deal Analysis

[Jimmy Hung]

Hi,

I've been analyzing SFH and multi family up to Quad, but this 14 unit apartment complex was brought to me and I wanted to get your thoughts on whether this is a good deal or not.

14 Unit Apartment - 6 @ 2 Bd/1ba 1000sq ft, 4 @ 1bd/1ba, 4 @ 3bd/?ba.

Current rent averaging $425 for a little under $6000/mo. Last 3 years of expenses, the highest was $1288/mo. I can get this on a 5/1 ARM loan with 15% down at 4.25% int. I estimate property taxes to be around $6500, and I'm not really sure on how to estimate the cost of insurance. I am partnering up with a few insurance agents and waiting for them to get me quotes back.

Asking price is $575k, but seller has gone down as low as 500k. Hoping to acquire this for 32k/unit or less so around 450k. @ 450k, the down + closing cost would be around 80k

Average rent in the county is $798 for 2bd/2ba, I'm hoping to rent this out to section 8 for around $650. Currently there are no vacancies, so in the short run, the goal is to raise rents by around $65/year and vacant properties will be made rent ready and bumped to $650.

I hope this is enough information for you to be able to help me analyze whether this is a good deal and/or if my thought process around bringing rents up is achievable. The goal to get this apartment fully to market rent will most likely be a 3-5 year plan. Based on my calculations, after getting the property to market rent, I should be able to cash flow around $2400/month which will give me a 36% COC at that rate.

Any thoughts or advice is greatly appreciated.

[Bjorn Ahlblad]

@Jimmy Hung My advice would be to underwrite the deal based on today's rents and make sure those are actually being paid-don't take the seller's word. Look at records. What do the leases look like etc. Who has paid deposits etc. Walk the neighborhood, hang out near the building watch the people traffic etc.

Go to the county website and you can easily determine the new taxes. Do the tenants pay for any utilities? You won't have the flexibility to change the financial picture as much as you want to. You are pretty much stuck with the current tenants; as people move out you can spruce up the units and raise rents.

I'm surprised your insurance agent co investors are not able to come up with numbers for you. If it is an old building with a flat roof you might have a very tough time getting insurance. Check everything out thoroughly before you commit, and have a sizable chunk of money available just in case people start losing their livelyhood and can't pay rent. 

Find out if the city or county require a business license and if they want to perform inspections of apartment buildings. Go to rentometer.com and see what they say about rents at that address. Check into garbage collection and the size of dumpster you will need. I have a 12 unit garbage is 3300 per year. The devil may be in the details. All the best!