What Should I Pay for this 12-Unit Property?

[Rob Riggins]

I’m looking at an off-market 12-unit apartment complex in a C+ or B- area in Saint Louis and have two questions:

1.What is a valid purchase price based on the property fundamentals?

2.I have a bit over $100k to invest so purchasing the property outright would make rehab/repairs doable from cashflow, but challenging. If I were to partner with the current owner by providing funds for rehab what would an equitable partnership look like?

About half of the units could use updating. Probably $75-100k in work would need to be done over the next 1-5 years, ranging from kitchens, to electrical to new windows. Current owner selling to take out his equity and focus on his other properties, as he doesn’t have the cash to upgrade the units.

Asking Price: $525k

Rent Roll: ~$83k

Vacancy: 11 of 12 units currently occupied.

Property Management: Professionally managed $5,340 annually

RE Taxes: $4,608/yr

Insurance: $2,800/yr

Water/Sewer: $2,796/yr

Heat (Gas): $7,657k/yr hot water furnished to all units, heat furnished to 9 units

Repairs & Maintenance: $8,136/yr (my estimate)

Capex: $8,136/yr (my estimate)

Total OPEX: ~$39,500/yr (~48% of Gross Rent)

NOI: $43,500 8.5% cap rate

Financing: TBD. Struggling with this as the loan amount is small for a multifamily.

Misc: On-site caretaker lives in basement room (not included in 12 units), cleans hallways, mows yard and does snow removal. Parking is on-street, but plentiful. 

Any and all thoughts or comments appreciated. Thanks!

[Michael D.]

(Warning, I'm about to give ideas that I don't really know anything about)

The total short-term cash that you need is $200k. Structurally, I think you would setup an LLC to be the exclusive owner of the property. This LLC would need to be funded with the $200k, which you'd get from however many people, including yourself, can come up with the money, dividing ownership appropriately. $100k would be used for the initial down-payment, and the other $100k would be used for all initial repairs. You'll also certainly have to personally guarantee the loan, so be careful what you're signing up for.

Income from the property would be distributed according to the LLC operating agreement, probably according to ownership interest, with maybe an override for whoever is doing management tasks.