Deal Analysis: 12-Unit Apartment Building - Current vs. Rehab

[Kyle Lewis]

I'm an investor from California looking at a 12-unit property in the midwest. Below is my analysis of the deal and I'd love your feedback!

The building is in good condition overall. Units are all 1 BR 1 BA and very dated. Rents currently around $500 per unit, but I think market rent for the units in their current condition is around $550. My plan would be to slowly increase rents to market rate and rehab units one by one as they turnover. After spending roughly $10,000 to rehab each unit, I think I could get $725 per unit.

Sale Price: $380,000

Seller Financing: Seller is asking for $100,000 down, 5.5% interest, amortized over 25 years, paid off in 10 years. Resulting mortgage payment for first 10 years would be about $1,715/mo. After 10 years, I would refinance.

Closing Costs: $11,400

Total Cash Outlay: $112,100

Current Rent: $6,000 ($500 per unit)

Market Rent: $6,600

Fully Rehabbed Rent: $8,400

Vacancy: 10%

Expenses:

Property Tax: $1,059 (17.6%)

Insurance: $458 (7.6%)

Property Management: $790 (13%)

CapEx/Repairs: $600 (10%)

Total Expenses: $2,907  (48%)

Current Rents:

• NOI: $2,493
• Cash Flow: $778/month
• Cash ROI: 8.33%
• Cap Rate: 7.6%

Market Rents:

• NOI: $35,450
• Cash Flow: $1,239/month
• Cash ROI: 13%
• Cap Rate: 9%

After Fully Rehabbed:

• NOI: $54,812
• Cash Flow: $2,853/month
• Cash ROI: 15%
• Cap Rate: 10.7%

It was a bit difficult to lay everything out accurately given the 3 scenarios, so I've attached screenshots of the spreadsheet I use displaying each scenario in more detail.

Thanks!

Current rents:

Market Rents:

After Full Rehab: