Analyze poorly managed multi family in Houston Area

[Tristan S.]

Hello everyone,

I am trying to get a hang at analyzing multi family properties in Houston. It is actually a property where a friend of mine is renting. We are trying to evaluate it. It is a 6 plex in the heart of the city (montrose/midtown area). The landlord is a slumlord, there are no leases in place, no maintenance is ever done, the rent are easily 50% below market.

Firstable, I would like to know if anybody knew what would be a realistic cap rate to assume for this neighborhood (Montrose/Midtown districts of Houston) ? 

Then I was going to calculate the NOI and determine the actual value of the property. For the NOI, what shall I assume for maintenance, lawncare ..etc since the landlord actually never spends any money on that. I am not sure what shall and shall not be taken into consideration, knowing that it will directly impact the valuation of the property.

Thanks for your help.

[Levi T.]

Im on the road traveling today, but this is my type of deal, all day everyday. Love these deals, I'll keep it short as I'm on the mobile.

Frankly it's not about what the cap rate is for the area, it's really about what it will take to repair the property, and what type of cap rate you want if nothing changes (worst case scenario). 10% is mine.

I come down the line at 13% maintenance, because they put stuff off, and man it just adds up for the first year. Just checked the trailing 12 months last night, it was 12.4% on all the new deals.

All these properties have bad tenants, what I call zeros (zero credit), they will all be evicted at some point, which is costly. So it's easy to assume all units will have at least one month of rent lost, if not 2 as you need time to turn and rent.

Normally I find rehab cost are between 5k-10k per unit. After that we are likely talking structural issues.

In the end you can point to numbers, but if the owner don't want to sell, it is what it is. Good luck!