Offer for an apartment building

[Mike Krieg]

I'm looking at an 18-unit building tomorrow being offered for 350K. Rent rolls show it's 65% occupied and the maintenance budget is showing about 10% which is probably about 5-10% too low for this property. So this is a value-add deal. NOI is 28K. Based on that the cap rate of the offering price is 8 which is far too high for a property like this. This is a lower end property that will require more hands on management. So, I'm adjusting my asking price for a cap rate based on 12% or 280K. What are the questions I need to be asking as I look at this property? I've looked at comps in the area and I expect that money will need to go into each unit to bring the place up to par with those comps. Also, we'll look at plumbing, foundation, electrical, location relative to competition, etc...I'm trying to find a checklist I can use for a smaller apartment building like this. Anybody know of one I can use?

[Joel Owens]

Find out motivation for the seller on why they choose to sell it at 65% occupied versus leasing it up themselves.

How long has it been at 65%??

If 18 months for example you have a baseline to go by. If the occupancy has been going up and down like a yo-yo then I wouldn't count 65% as the gospel.

Might want to send them a non-binding LOI with a low ball to see if they want to play or not. If you get a " This property is a steal and is non-negotiable blah, blah, blah then might want to pass. Plenty of buyers overpay. Do not be that buyer.