Building a 14 Unit Apartment: Cash Flow Proof of Concept

[Chris C.]

Hello PB,

My Partner Mike and I (Chris) are moving steadily through our first deal. We acquired through seller financing a two-story mixed use commercial property totaling 8,000 sqft, located at 77 South Street, Bethel, CT 06801. The seller also owns the house next door which we worked into the contract a 2 year first right to offer option (expiring June 15, 2020). The plans are to use the second lot as a parking area since parking in Bethel is considered a premium in the downtown area. The note of $1.79M reflects the total needed to secure the property next door ($200K), paying off the principle balance on the note for 77 South Street ($240K) and all estimated expenses to build out 14 apartments. My background is heavy in finance, accounting and supply chain while Mike is an established architect who works for a one stop shop construction and design firm. We are posting today to get some feedback on our cash flow model (pictured below) and some advice or guidance on the obtaining cash investor(s) to fund the 20% down payment needed. The model is reflective of 6 years rolling. Year one assumes construction beginning in May 2019 and concluding in September with the apartments being available to rent by October 2019. The cash flow is based on 90% Occ. for 3 months (Oct, Nov, Dec) in the first year. The expenses are a bit conservative in years 1 and 2. In this scenario would provide all of the cash flow for the first and second year directly to the cash inventor(s) which is $28K and a full loan repayment through a refi in early Q1 of the third year. Since the expenses are a bit heavy, we are estimating a rate of return of 8-12% and a full principal payback in the year following.

We are open to any suggestions and thoughts

My hope for this post was not to provide paragraphs which is why it is a bit short and to the point. We can provide the CAD drawings and layouts of the apartments, the additional tables making up the estimated expenses and taxes. We can also provide an aerial layout to show how close young professionals would be to the downtown area with a microbrewery across the street. We are firming up the construction budget with subcontractors and will have that in the next few weeks. We will be meeting with Planning & Zoning to gain their approval of the project by next week.