16-Unit Deal Analysis

[Javonni Butler]

I am a new investor, though I have been involved in real estate most of my life. I have experience in property management and leasing, residential re-development, and now I am currently an Assistant Superintendent for a home builder. I am looking into getting my first investment properties, as I eventually want to develop and invest in apartment and condo communities. I was hoping you could maybe take a quick look at my analysis and tell me if you think everything is alright. 

So a little info on the project:

A man who I have done business with in the past and is actually a sort of mentor to me, has a 16-Unit building (and a 24-Unit we are also working on) in a C/C+-Class neighborhood in Milwaukee, WI. I am doing a Subject-To deal with him, so I will not be putting any money down. I have a value-add strategy going in all set up for this property and have done all of my homework going in. Attached are simple pro formas of the property, one at the current rents and vacancy and then the numbers after I execute my plan. I plan on fixing the units and I am doing most of the work myself; The “Reserves” row in the analysis is the amount of what the materials would cost. I am confident that I can carry out this project with the re-development plan I have in place. 

I am (maybe naively) assuming that with the units being updated, that there will be a lower vacancy rate and also there will be less demand for me to be so aggressive with reserves. 

I sincerely appreciate you all looking and commenting on this. I really appreciate your time. Any comments will be noted and appreciated. 

[Jason Bott]

I logged back in with Firefox and your spreadsheet came up, which I missed on Explorer.

If you buy for $450k, and you are write the insurance policy for $450k, your insurance estimate put you @ $0.75 per $100 of builing value, and that pricing is available in the current market.  The coverage will most likely be ACV.

That being said, most of the insurance companies will be asking for you to insure for $100 per sq/ft.  @16 units, I doubt the building is 4500 sq/ft or 281 sq/ft per unit w/o any common space.  So let's say the units are 500 sq/ft, total building sq/ft would be about 8,000.  This would push the building value to $800k, and @ the rate per $100 of $0.75, you could pay upwards of $6,000.