Small Apartment Complex

[Aaron Douglas]

Can anyone share any pointers on how to analyze a small apartment complex? I'm pretty comfortable with SFR's and small multi's, but I'm not sure if any of my calculations need to change for this property type. This is a very preliminary analysis. It looks like a good deal, just looking for some advice from someone experienced in apartments. 16 units under one roof Built in 1978 $7400/mo income Thanks, Aaron

[David Sohn]

Hey Aaron - 15% sounds like a dream come true!  But don't take the seller's word on the #s.   Confirm everything and build your own model that is based on your cost base to understand how much you can pay for the property to cash flow appropriately for you.

For starters, there's some great templates on the BP FilePlace for evaluating apartment complexes.

Short list of things to think about / budget for (outside of taxes & insurance of course):

-Plan on at least 5% vacancy.  7-8% if you want to be conservative

-Are you going to manage it or outsource? If you outsource plan on 6-10% of rent.

-Who pays utilities for water,heat,electric?  Make sure to understand this one well and plan for money there.

-Be sure to understand what the building might need next 5-10 yrs in terms of capital improvements and create a cap ex or cash reserve fund (opinions differ here for sure, but plan somewhere between 3-6% of rent).  Commercial lenders are going to want to see that.

-Think about modeling in turnover costs as well...we use something like 33% of units will turn over each year and each of those will cost somewhere between $200-500 to paint/fix small issues, etc.  Will vary by market and building of course - but worth thinking about.

Best of luck!