58 Unit "Back of the Envelope on Steroids" Analysis

[George N.]

Ok, so this deal is probably a "bridge too far" for me at this point in my REI career. Still learning, I don't know the area well enough/don't have a team there, and I would have to extend myself more than I'm comfortable to work the financing. There's clearly a middle ground between this and owning two quads for a couple years that I would need to graduate from first before tackling something like this. However, I think it's an interesting property and wonder what others think. I enjoy taking potential deals and sizing them up as an exercise, I think it's a good way to practice analysis skills and sharpen your eye. I've dug more into this than "back of the envelope" but all I'm working off is a drive by, proforma, and a few hours research/conversation with the broker. So plenty of assumptions here. The place was under contract but the deal just fell apart.

It's a 1950s 58 unit (1bd/2bd mix) with 30 garages. Units are separately metered but owner pays for water. Newer roofs, siding in decent shape. Garage doors are rough, asphalt, fencing etc. needs work but the grounds are neat and well kept and it's a has decent curb appeal. Especially with some sprucing up. Owner claims plenty of interior updates. It's in a growing large town with a good economy, working class neighborhood/older part of town but the kind of place I would feel perfectly comfortable taking a stroll at night in, even with my kids. It's sandwiched about a 1-1.5 miles between the town’s major mall and the historic downtown district with definite signs of "gentrification."

Price = $1.6M +/-

Owner is claiming appx 250K gross op income last 3 years (income expense report not schedule E). In my market I'd be able to tell if that's legit instantly but here I can only say that based on surface research and without getting in the units that seems pretty reasonable. Obviously this is a key research item that would warrant deep investigation in an offer type situation.

The taxes (24K) insurance (9k) and other major expenses seem to fall in line with the 50% rule. He's claiming 35% of gross income as operating expenses and breaks it down every which way but that's meaningless to me, I toss pro-forma numbers out the window unless they admit to something damning. At 25% down for 25 years I'm seeing a $7500 +/- payment a month and a monthly net operating income of $9500 +/- for a $2K a month cash flow. By my calculations it's roughly at an 8 cap. Amazing? No. But I'd collect rent here at night and it's a growing low unemployment town.

Seems to me like if this was in my market/not quite such a large deal I would want to dig into it more. This is the kind of place I could see myself getting in to in a few years as a long term hold. What do you guys think?