My First Apartment Complex Analysis - What's Missing?

Question

We have been presented with a multi unit deal in a neighboring town from collge station:  here is my analysis and why I would consider the deal, but this is my first multi-unit deal and any advice would be extremely helpful.

Sale Price 1.42MM

Built in 1998, recently rehabbed

12 Units at $1150 per unit

The financing I am currently working on is an 850K 30 year note from bank @ 4%

570K seller Financed note@ 5%

Taxes @ $25,131

Insurance @ Est: $9K

Repairs at 7% ($11,500) Annually

Vacancy @ 8.33%

Shows 20K cash flow per year.

Would you do this deal?

Zach Quick · Answer

@Cody Begg Is the HVAC, Roof, water heaters, etc. original? I would price out the useful life of them to determine what you would need in CapEx. For example, let's say a roof for this building costs $20,000. If it is projected to last another 10 years then you would need to set aside $20,000 over 10 years or $167 a month roughly just for the roof.

I would determine what your Cash on Cash and IRR needs to be for you to think it is a good deal.  That is going to vary from person to person, I mean that property could cash flow more than 2,000 per unit per year if someone bought it cash, but that doesn't mean that it was bought at a good deal, follow?

Cody Begg · Answer

@Zach Quick  Thanks again.  Quick question, I will adjust the numbers you mentioned in my model and will try to find a low offer price that makes sense.

On your general rule of thumb, I had 2 questions for you:

When you look at a deal like this how much do you typically budget for Repair and Property Management? Assuming a 1998 building with the "cosmetics" already re-done.

Next question, If I walk away on this deal, which you are leaning me toward doing---  On a 12 unit 1. something million deal, what should be my goal for cash flow generally speaking...  Are you satisfied with $2K per unit per year?

Zach Quick · Answer

@Cody Begg Are they vacant because it is end of semester or have they been vacant for some time?

I would be surprised if a bank will allow you to do that without any experience, but I've been wrong before.

Unless they lower the price substantially or you think that there will be significant appreciation in rents and /or the neighborhood I would probably walk.  It can't hurt to throw out a lower number offer if they can't find anything that fits they may come back to you down the road.

Cody Begg · Answer

Thank you @Zach Quick.  This is helpful.  Definitely found a few mistakes I had in my model.  I think that the deal is tight, which is why I am hesitating and looking for advice.

2 units currently vacant.  Yes, this is pushing the higher end of rents in the neighborhood as of now, but not necessarily in town.  There is some opportunity we see in rent appreciation as the neighborhood continues to go into these rehab situations and college rentals increase.

Waiting to hear back from the bank, we will see.  This could go either way.

The seller is interested in owner financing to spread their realized gains, is what they are saying.

I have added trash and lawn to my model, thank you.

Zach Quick · Answer

@Cody Begg Need a little more information.

-Are any of the units vacant?

-You said recently rehabbed, does that mean these rents are top of the line for the market?

-Is the bank okay with you financing the down payment?

-Why is the seller willing to finance the down payment?

-I don't think that there is enough meat on the bone here just based on what I am seeing.  You're also not accounting for future CapEx or Property Management.  Are there any utilities you have to cover too? You're missing trash and lawn for sure.

Ramar Price · Answer

Make sure that you put in for the property manager (if you get 1) otherwise, that isnt a bad deal at all for your 1st apt.