Multifamily Investment

[Ravindra Mantena]

I am looking for some help to evaluate this investment.

• one 3 story building with 24 units
• Built in 2008
• Landlord pays only water/Trash removal.
• 100% occupied

Financials.

• Sale price - 1.3 million
• Tax assessment value - 1.26 milion
• Price for Unit 55k
• Gross revenue 185K
• Expenses 76K
• NOI - 109K
• Cap rate 8.29%

Debt service - I also want to apply for commercial load ( 25% down)

Monthly payment for 1 million loan is about 5k ( Rate -4.12 , 5 year term, 30 year amortization).

Thank you for your help.

Raju Mantena

[Joel Owens]

Hi Raju,

Are you sure the building was built brand new in 2008 or just re-imaged then and is much older with an (effective year built)??

Buildings for 2008 that I know of have separate meters for all tenants to pay their own utilities. Paying water by landlord is usually for older buildings.

Are you local to this property or would you be owning out of state??

185,000 with landlord paying water is about 60% costs. 185,000 X .40 = 74,000

At 1.3 million you are looking at a 6 cap and not an 8.

At 50% costs is 92,500 NOI and a 7 cap. They are saying 41% costs which might be true if they self-manage. If you are not self managing and have to pay a PM your cash flow model will be different.

[Joel Owens]

Also if you can get the seller to carry a 10 to 15% seller second mortgage with favorable terms you can save your liquid cash for reserves and improve your cash on cash returns.

In that situation you put only 10 to 15% down instead of the 25%.

[Jeff Greenberg]

At face value the deal looks great with an 8+ cap and a 15% cash on cash.

Let's look deeper. As Joel pointed out with ABP your expense would come in around 60% including management , but not debt. All of the numbers need to be confirmed. A 4.12 loan is not easy to get these days so you may have an issue with that. I would also say that this looks too good for a 2008 property. What do you know about the deferred Maint? When you figure cash on cash make sure you consider closing ang lender cost as well as capex reserves.

Lastly, what is the market occupancy and is this calculated in?

Good luck