1st apartment deal:Help!

[Mety K.]

Hi, I'm a newbie in apartments and looking to make this offer in this offer. Any advise is extremely appreciated. Built around 1915. 10 Unit, 3 story, 1 commercial and 9 tenants. Rent is on the low end presently. Super lives on site and collects rent, takes garbage & minor repairs. I've still allocated 10% for prop mgmt fee. 

[Matt Lefebvre]

Hi @Mety K.! As-is, your current ROI is pretty low. If you want to make a 4.4% ROI, that's your decision, but for a cash-on-cash ROI, I never recommend to my own clients dipping below 11% unless there's a significant upside potential.

Your vacancy rate is a little low as well.  Does the property manager charge to re-lease empty apartments?  Most management companies charge a leasing fee.  Even if you maintain an actual vacancy rate of 5%, you have to factor in the turnover costs... so an 8% or even 10% vacancy is a safer number.  Similarly, 5% is low for R&M especially on a building built in 1915.  Now if it was recently renovated or you're budgeting in for a renovation right off the bat, that's not too unreasonable, but if you can fix everything in the building for $50K right away, then you'll be in decent shape.

On another note, not that this is impossible, but I don't frequently see 25YR notes for 4.5% commercial loans.  Typically I see 20YR notes at 4.5% - 4.75% interest, and requiring a minimum of 25% down.  Based on your numbers, it looks like you've factored in 20% down.  Not saying its impossible, but I very rarely see 25YR loans at 4.5% interest or 20% down for 10 unit properties.  

My two cents :)