Multi-Family Auction First Deal

[Terrell Williams]

BP,

I need your help and analysis. Today I won the bid on a 9-10 unit (3 - three bedroom, 6- two bedroom) apartment building at a public auction. The 10th unit is a commercial laundry facility in the basement. Risky, Risky, Risky. And yes, it's in a tough neighborhood in Baltimore. The deal is contingent upon the "out of town" seller agreeing to the offer.

Here are the numbers;

Purchase price with Auctioneers commission: $283k ($270k +5%)

Monthly rents: $5,850 (one unit is vacant and needs $10k of work)

Yearly gross rents: $70,200

NOI: $35,000 (assuming 50% operating expenses)

Debt Service: $16,700

Cash Flow Before Taxes: $18,300

Commercial Laundry Lease: $21,600

Tenants pay for their own seperate utilities, LL pays for water except the Laundry pays for their own water. There is a 350sf building (former 2 car garage) in the rear that was used as a salon with a bathroom that's vacant. Could rent for $400-$500 per month.

This is a Buy & Hold. What's your feeling on the numbers? What if the Seller comes back and wants more money...say $300k?

I did have a chance to walk 6 of the 10 units and talk with the tenants. Most were happy, but a few had minor issues to fix.

Thanks

[Joel Owens]

An 8 cap for a rough area IS NOT a deal.

What age is this building?? Your minor repairs might end up being huge repairs based on the construction and materials used. At a 9 to 10 unit you have just bought yourself a job.

I know because I owned a 20 unit at one point and never again. Only would buy one where the size and scale warrants a full time manager and a full time maintenance person.

50 units plus building to typically be able to do that. This way I review the books once a month and check in bi-weekly with the PM.

When landlord pays water you do not go 50% costs it will be more like 60% and if the building is really old 65%. Pay attention to price increases on water and sewer rates and special assessments which can kill your future years cash flow model.

You price is about 31,450 a door for 650 in rent which is decent. I think you will find repairs to be much higher than anticipated.