Smart People Please Provide Feedback on This Apartment Analysis!

[Ayodeji Kuponiyi]

Hey BP Nation,

I found an apartment and would like some help/feedback with the analysis. I believe I am on the right track but I know there’s experienced syndicators and apartment owners on this site so please share your thoughts!

The apartment is 2 mile from central campus of a university with enrollment of 6,242 students. It is also less than a mile from the downtown area featuring bars and restaurants. The area experiences high rental demand and around 5% of homes in the area are owner occupied.

Asking Price: $1,350,000

24 Units, 8- 1Bd/1Bath & 16-2Bds/1Bath 14,400 sqft, built in 1958, 2 year old windows, laundry facility in basement, hardwood floors, tiled bathroom, walk-in closet, private parking lot for $1,350,000. Tenants pay electric & gas, owner pays water.

Monthly Rents: $625 - $725; $16,391 rent (GSI: $196,692)

Laundry Income: $1,106 / Vacancy: 5% ($9,835)

Total Net Income $187,963

Expenses

Property Taxes: $16,423

Insurance:$5,266

Water: $15,618

Maintenance & Repairs: $12,000

Management Fee: $9,398(5% of rent)

On-Site Payroll: $10,000

Gas (Laundry) : $658

Reserves & Replacement: $6,000

Trash: $2,871

Electric (Laundry & Common Area)

Contract Services: $6,000

Total Expenses: $85,720 (46%)

NOI: $102,243

Downpayment: 25%

Years: 30

Rate: 4.0%

Cap Rate: 7.57%

I am roughly estimating $40,000 in improvements though I will get a contractor to provide me with his/her estimate. Judging from the pictures, the interior units appear to be in good shape.

At the purchase price of $1,350,000, I am getting a cap rate of 7.52%, Cash-on-Cash 7%, Average Annual Return of 6.9% and an Annual Cash Flow of $30.473.

Not sure if these are the best returns. At a offer price of $1,340,000, while keeping the marketed cap rate of 7.57%, the annual cash flow is $30,999.

I’m looking for something with an Average Annual Return within 10%-15% and I’m waiting to see hear back from brokers if that is realistic in Philly. To reach that rate of return, my offer price would be $1,250,000. I wonder if this market just bad for investing in apartment. Did I do something wrong?