Looking for Feedback on My (Potential) First Apartment Deal

[Phil C.]

Hello Everyone!

I am a buy-and-hold investor in Atlanta, GA. I have been focusing on single family rentals but I am looking for my first apartment. I have a potential candidate that I would run by you. Any feedback would be greatly appreciated! Also, we are looking for partner investors that may be interested in this.

This is a 20 unit apartment building, for sell for $37,500 per unit. All units are currently renting out for $500 per unit and most tenants have been there for 2+ years. Landlord pays for water, roughly $1400 per month. Tax around $8500 per year. The building is from 1965. Units are in fair condition – no immediate repairs needed, but definitely maintenance down the road and has potential for updates.

The apartment is at the edge of a B neighbourhood with mostly single family households. These houses sell for 150k-250k. The apartment itself is close to a commercial office building (currently empty for lease) and an auto collision center.

Based on my own calculation,

Net income will be half of the rental income, which is $500 per unit *20 units*0.5=$5000

Total investment is $70k.

Therefore Cap rate is 5k/70k=7%

The owner also owns a property management company that has been managing this apartment. He is interested in investing money elsewhere thus he is not interested in seller financing.

I think this is a fair deal but not a good deal. But on the other end, I believe in “having as many families under the same roof as possible” and don’t want to keep expanding with single family rentals anymore. So this could be a chance to step into the apartment business. Any feedback (especially from my fellow Atlanta investors) would be great!

We would like to go for a conventional loan with 25% downpayment. We don’t have $175k cash for down payment, but we have other properties with good equity and would like to find ways to work this out. If anyone is interested in partnership, please let us know!

[Azeez K.]

Hi @Phil C. 

Firstly, welcome to BP! and congratulations on expanding in Apartment investing. I am a fellow buy and hold investor, Realtor, entrepreneur here in the Atlanta market focusing on MF. 

I constantly analyze MF properties here in Atlanta. I have a few MF currently in the works so I am very familiar with the Atlanta market as it relates to MF.  In short this is not a deal the price/unit is high and I can bet there is a whole lot of deferred maintenance on this property.  

Revenue Assumptions:

Monthly rent revenue  = 500*20 = 10,000 (A)

Vacancy = 10% (12000) (B)

Effective Gross Income = 108,000 (A-B)

Operating Expenses Assumptions:

Property Taxes = $8500 (C)

Insurance - $4,000 (D)

Utilities - $18000 (1500*12) (E)

Property Management - 10% (10,800) (F)

Repairs - 10% (10,800) (G)

Maintenance - 10% (10800) (H)

Total Opex - (C+D+E+F+G+H) = $62,900

Net Operating Income = 108,000 - 62900 = $45100

- Total Debt Service = 69k (Downpayment 3% Rate 5%Term 20yrs)

Cumulative Cash Flow = 45,100 - 69,000 = -$23,936

*above includes 40k deferred maintenance as well

Based on above your DSCR will be lower as well as cash on cash return will be negative. The cost of these units should be between 20-25K. Bottom line this is over priced.

Just curious is this MF in 30317 zipcode. 

All that being said I would love to connect with you as I am from Atlanta as well. I hold bi-monthly BP meet ups and would love to connect. I am also open to JV's. Let's connect.

Good Luck!