Appartment building

[Jonathan Johnson]

Hello BP! I think I found a good one!

This is a 5 Story appartment complex outside downtown.

First story is commercial businesses leasing out.

Second story are 4 apartments all leased, I haven't seen anything but the hallway but they look very nice.

3rd 4th and 5th are gutted.

The whole thing is going for about $310,000

I'm guessing conservatively that the current monthly income is around $4000. The mortgage would initially be about $1400.

I haven't asked about the listing yet. I don't have a business set up yet. My brain is fried with excitement. What should I ask about this property and what ducks do I need to put in order?

[Michael Sjogren]

Hi Jonathan,

At a quick glance the expenses look a bit light (currently shows about 38%, where a quick rule of thumb is 50%). Repairs and maintenance were only $283 last year, may be a sign of some deferred maintenance on the property. There is nothing in there for property management which could run 10% of collected rents plus lease up fees. A few preliminary questions are outlined below.

Some questions to ask broker:

What is the unit mix (number of 1Bed, 2Bed, etc.)? Ask for current rent roll to see what each unit is getting per month, if the tenants are on leases and when those leases expire?

What is the current occupancy of the property?

Is the commercial space leased as triple net (meaning tenant pays for everything)? When does the lease expire?

Questions to ask yourself?

How well do you know the market? What has job growth and population growth been over the past couple years and where is it projected? What are the comparables in the area getting for rent?

What is the capitalization (cap) rate for similar properties in your area?

How much capital do you need to finish the 3rd, 4th, and 5th floors and what rents can you get for the units?

Are you going to self-manage the property? If not, factor in 10% of collected rents plus lease up fees.

Hope this helps.