6-Plex in South East Oakland County, Michigan

[Scott B.]

This is my first "REAL" shot at putting together a multi-family deal.

Please let me know what you think.

Thanks,

-Scott

THE DEAL

"6 unit apartment building, all with (1) bedroom and (1) bath. Basement with 2 coin washers and dryers. Updated electric, plumbing, furnace and hot water heater."

The property looks to be a larger home that was converted into a 6-plex.

Information Per Broker

• Asking $269,000
• Gross Rent - $2,845/Mo – 34,140/Yr
• Size – 3,405
• Units – 6
• Bedrooms – 6
• Baths – 6
• (2) Coin Operated Washer and Dryers
• Landlord pays utilities

Financials Per Broker - Yearly

• Gross Rent $2,845 - $475/unit/Mo
• Insurance $3,400
• Taxes $7,100(My estimate)
• Water $1,680
• Electric $345
• Gas $1,740
• Grass $720
• Snow $500

What’s missing?

• Capex
• Management fees
• Anything else?

Per the broker, plumbing electric, furnace, and hot water heater have all been updated.The parking lot, grounds and exterior appear to be in really good shape.

I have not seen the interior of the building, however if it is anything close to the outside I’m sure it’ll be fine.

Comps

Across the street, a recently sold garden style property is listing their rentals at $725, it’s been completely rehabbed.This building is closer to a “walking” downtown with bars and restaurants.

There are also several other nice multi-family properties renting between 450 & 900 (for larger new construction buildings).

In most of the 4-10 unit buildings, it looks like the owner is paying some if not all utilities.

My Numbers

• Offer $140,000
• Apply a 11/12th vacancy rate
• Increase rents to $600 per unit bring total gross rents to $3,600/Mo $43,200/Yr
• I’m using the brokers utility expenses (for now only)
• Increasing property taxes to my number $691.67/Mo or about $7100/Yr.
• Repairs and Maintenance $270/Mo $3,240/Yr.
• Management Fee $270/Mo. $3,240/Yr.
• Capex $270/Mo. $3,240/Yr.

Other Information

• Trash - No dumpster, appears to be city/residential style pickup
• A/C appears to be the responsibility of tenants. Several units are using window air conditioners.
• Parking 8-10 spaces off street, plus on street available.
• Close to large park.
• Easy access to major Metro Detroit free ways and nightlife.

Offer Structure

• 75% Conventional mortgage – 30 Year @ 7%
• 25% Seller Carry 5 Years interest only @ 8%
• I have cash / HELOC to escrow taxes, as well as cover closing costs and inspections out of pocket

What I’ve done

I’ve put all of this into the buy and hold calculator, but here is where I am at decision wise. The property will pretty much run itself but will not produce any additional cash flow. I’m ok with that, if I self-manage or do the lawn care that cash will come back to me. Right now it looks like I “could” turn it over to a manager and pay down the mortgage.

I’ve read over and over not to give the seller credit for rent increases, of course I would only do that after seeing the inside of the property. The only reason why I’ve done that is because at $475/Mo a unit I don’t think you can make anything work.

I don’t know the full story as to why the rents are so low, I’m sure the broker will tell me some story about keeping the units full etc etc.

I'm not sure if I'm too high on my Capex and Maintenance. From the outside and description it looks really well maintained.

I know there’s a big difference between the offer and the price that this deal makes sense at. I want to make sure I’m calculating my number right, and see how motivated they are.

At $269,000, I’m not sure I could make money on this.

Thank you for your input, I greatly appreciate it.

- Scott