Under contract on 118 unit apartment complex- ALL 1 bedrooms

[Matthew Vos]

Hello All,

   I am currently under contract on 118 apartment units in Wichita, KS for $2,295,000.  Basically $19,000 a door.  It is a bankruptcy deal so there is a bit of hair on it, but overall pretty clean.  They are all 1 bedroom units and I am thinking of converting a portion of them into 2 bedroom units and would love some advice/formulas investors have used to calculate if this is a good idea or not.

   I am also looking for some partners on the deal as I am looking to raise $1,000,000 in cash and have the financing already set up for $3,300,000 with me being the guarantor.   My plan is to buy for $2,295,000 and do $1,000,000 in rehab.  Bank has approved me at $3,300,000 putting $950,000 down and that would give me $1,000,000 in rehab draws.

   Once complete, I am estimating about $50,000 a month in income and a property value of about $4,200,000.  

Here are the details:

1. I think occupancy on all 1 bedroom units is around 80% when I am done remodeling them and fully stable.

2.  If I am doing rehab anyway, knock down the wall separating the 2 units, make 1 big kitchen in the middle instead of 2 smaller kitchens.  Then try to increase my occupancy to 95% with a mix of 1 and 2 bedroom units.

3.  Average 1 bedroom rents are around $495 and average 2 bedroom rents are $825.

4.  Currently occupancy is 50%.

    I would love all feedback and formulas that people have used when faced with changing bedroom count in an investment.  I currently have 95 rentals, mainly smaller apartments and single family.  Look forward to getting some thoughts and feedback.

[Jeff B.]

The 1/1 configurations tend toward higher vacancies as these are typical singles which tend to be more mobile.  Thus I favor at lease 2/1 for family tenants.