In over my head with mutli-family!

[Jennifer Townes]

Hi everyone - sorry my intro will have to double as my cry for help! :)

Here is a summary of the issue:

My husbands father purchased a vacant 8-unit building under one of his companies in 2012. 

A while back, father in law transferred the ownership to a different company that he and my husband mutually own (husband basically in name only).

My father in law is now gone,  and my husband has 100% of the company, and has  found that the property is held by this company. 

The building is in West TX, and we live 6 hours away. 

We would like to sell this building because we don't really have the cash or time to get it up and running right now- nor do we have any experience in multi family buildings.

The details of the situation boil down to:

- father in law paid cash- we think around $265k, then invested an undetermined amount in rehab.

- last tax appraisal is at $90k.

- when purchased by father in law-- building was vacant and needed extensive rehab: Roof, electric, plumbing, complete gut and rehab of interior.

- he got written estimates on all of the work in 2014, and they totalled $200k.

- he had a different contractor begin work on the property without permits, as far as we can tell (there is no paper trail- permits, receipts - nothing). 

- they did plumbing, electrical, demo interior, installed duct work, new sheetrock and sub floor,  kitchen and bath cabinet, counter, sinks, tubs, toilets, tile work, and new windows throughout.

- additionally, he purchased light fixures- interior doors- and appliance packages for each unit which are all sitting in storage now.

- since he did not do the roof, there is now water damage from the leaky roof, to some of the new sheetrock and sub floor.

Here is where we have gotten so far:

**read a bunch of info on NOI, Pro forma, CAP, and looked at other delapated multi family buildings that have sold in the area.

**Checked out rent price per sqft in area, vacancy rates, CAP rates for low income housing (according to the city tax website, the cap is 10.5% for these)- which we think is the way he intended to rent this.

**Setting appointments with licensed trades people to evaluate the work already done- to see if we can get it permitted,  or if it all is just a total loss (don't have answers yet, since I will have to make the trip back out there to let them in ).

When I look at CAPs on other buildings, price per door, price per square foot, etc. it all seems really all over the place- so I think I must be doing something wrong.

Also, I haven't come across any completely vacant buildings like mine either.

From what I have read, calls to local prop managers to determine management fees, local rent rates, current taxes... I have come up with some estimated numbers that look like this, after it is renovated:

$700 mo X 8 units X 12 months =       

$5600 mo/$67,200 gross projected income

$67,200.00 - the operational expenses of 35%

= $43,680 NOI

NOI/10.5% CAP = $416,000.00

$416,000 - $180,000 rehab 

*(being conservative and assuming all work so far, aside from new material not yet installed, is a loss due to unlicensed work).

 = $226,000.00 asking price

Does that seem right?

If I understand the quantification properly - we're looking at maybe a D+ property in a C neighborhood:

The building is from 1925, The roof is leaking in spots, but by no means is it falling down. 

My kids and I went alone to West Tx, to check out what we are dealing with, and felt absolutely safe in the neighborhood and house.

My father in law left over $20k worth of packaged brand new appliances and materials in the house since he stopped construction in 2014- and everything was there and not tampered with when I went last weekend(!).

... I went ahead and had everything relocated to a storage facility- just to be reasonable, LOL.

So, I'm guessing D and C class?...

We aren't familiar with how this market works, or even who we would go to, to get a valuation. 

We have had a couple letters and calls from investors interested in the property - but have not spoken to anyone, since we dont know what a fair price is, and are still trying to figure out the terminology.

The building directly behind ours sold in 2008 for $795k. It is 15,000 sqft, has 30 units- split between 1/1 units and efficiancy. They are section 8. 

I think the closest comp I found was a distressed short sale last year. They were above 50% vacancy. The building is 26,000 sqft with 1 and 2 bdrm units. Needed renovation.  Sold at $449,900.

Neither sale listed any property income or expenses. 

Wow, sorry that was so long! 

Any advice on what we should do from here, how to value, is the 10.5% cap for low income property what we should use?, anyone have a ballpark on value? How do my numbers look?

Thanks for reading!

[Anthony Gayden]

@Jennifer Townes

What are your plans for the property? From the sound of your post, it seems like you are not interested in doing a long term hold, and are more interested in getting rid of it. If that is the case, I would suggest you speak with a commercial real estate broker. They would more accurately be able to determine the value of the property.