HELP ON EVALUATING 15 UNIT APARTMENT!!

[Dusty Bowling]

Hey everyone I’m looking to purchase my first complex . A little background on myself . I’ve been investing for over 20 years . I’ve flipped around 60 single family houses and have built 12 new builds. We also have 25 rental doors. Im looking to scale up and jump out to the first complex. Me being a flipper I was ideally looking for value add. I live an hour outside of Indy and looking in rural areas. Im in talks with the following:

15 unit complex 

Has 5 ranch buildings, C+ area just outside of town. Located on 3 acres each building has its own well and septic. Units were built in the 70’s. Cap rates are going in the 6-7 range . We will definitely over improve on the higher end so I’m guessing we would be closer to the 6 cap. I think we are going to settle around 350,000 purchase price. 

Building 1 ( 4)bedroom rented for 1100 (1) 1bedroom empty needs 15k rehab to be rent ready for 600, (1) 1 bed needs 10k to be rent ready for 600)

Building 2 ( 2) 3 bedroom rentals each rented for 800 market rates are 1000

Building 3 (2) 2 bedroom units each need 25k to be rent ready, (2) 1 bedrooms each need 20k to be rent ready for 600

Building 4 (1) 4 bedroom unit. Renter just left . 5k to make rent ready for 1100 (1) 2 bedroom rents for 700

Building 5 (2) 2 bedroom units. One needs 20k to be rent ready for 700. The other is rented at 700. (2) 1 bedroom units each needs 15k to be rent ready for 600

Currently only 6 units are ready for rent with 4 currently rented at 4,100 month.  

when calculating NOI you do count for just gross market rents. I've checked the area they are what I've stated above .
1100 4 bedroom (2) 2200x12 = 26,400

900 3 bedroom (2) 1800x12= 21,600

700 2 bedroom (5) 3500x12= 42,000

600 1 bedroom (6) 3600x12= 43,200


Gross rents 132,200- vacancies 13,000-management 13,000-expenses 25,000=

NOI= 132,200-51,000= 81,200

81,200/.06= 1,353,333- 220,000 improvements. 1,133,333 - 350,000 purchase price = potential profit 788,333!!!

170k improvements plus 50k exterior improvements. Total of 220k . I’ve done plenty of rehabs so am pretty confident on rehab budget. 

Am I doing this correct? If so this is a slam dunk, home run of a deal. Any help on what I’m looking at incorrectly would be appreciated. Thanks 

[Anthony Dooley]

Look at it as individual units and it may be easier to make sense of. $350,0000 price divided by 15 units is $23,333 per unit. Calculate the annual income of one unit and determine if you think it's a good deal. Sounds good to me, but I don't know your market or location. If the cheapest unit rents for $600 per month, or $7200 per year then it's a great deal.

[Dusty Bowling]

Thanks for the response AnthonyDooley. Yes the cheapest 1 bedroom rents for 600. We do have to put a total of 220,000 in improvements to get there , so doing that would be 23,333+14,666( improvements)=38,000 per unit/7,200 per would be 19%. Of course this based on the lowest value of a single bedroom. There are more 2,3,and 4 units then singles. 
Im just trying to see if I’m missing something greatly? 

[Anthony Dooley]

You are over thinking it. If you found a rental that was move in ready for $38,000, would you buy it knowing that it rents for $600 per month? That is your answer. 

[Dusty Bowling]

I’m looking for the resell down the road. 600x12= 7200- expenses ( 50,000\12=4166.  3,034/.06 cap = 50,566 per 1 bed unit

Obviously 2,3,4 bedrooms are much more valuable. If that’s true and I’m seeing the value right it’s an absolute no brainer. 

[Brock Mogensen]

General rule of thumb on expense ratio - it should be at least 50%.  So operating expenses divided by effective rent should be at least 50%. If it's a class C property that number should be closer to 55%. 

[Michael Plante]

Originally posted by @Dusty Bowling:

I’m looking for the resell down the road. 600x12= 7200- expenses ( 50,000\12=4166.  3,034/.06 cap = 50,566 per 1 bed unit

Obviously 2,3,4 bedrooms are much more valuable. If that’s true and I’m seeing the value right it’s an absolute no brainer. 

 If you don’t get it please let me know because I may be interested. 

Would be happy to pay you a finders fee 

Thanks!

[Dusty Bowling]

Hey Michael, always nice to have options. I’ll keep you in mind if I don’t pull the trigger. 

I’m looking into another complex as well. Much larger (42) 2 and 3 bedroom units located a couple miles from the other complex. Country property all brick duplexes. Would also be a value add but not as much rehab they currently mostly all rented out or will be shortly( recently vacated) 2 (2) beds are used currently for storage 
(34) 2 beds have market rate of 695

(8) 3 beds market rate of 950

Market rents of 31230 / 374,769

Actual rents of 23560 / 282,730

Owner’s expenses show much lower but I’m guessing realistically around 45% 

Market expenses 168,646

Actual expenses 127,224

NOI market 206,123/ 6 cap = 3.435 mil

NOI actual 155,506/ 6 cap = 2.591 mil

Are you looking into bigger properties in this price range if I’m not able to tackle both?