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:

[Amber Gonion]

One thing to consider, not every rehabbed apartment will generate higher rent. You need to look comps in the area to be sure that once you spend the money you will be able to raise rents. I am sure you have already, but just a reminder. We all tend to look backwards and prove our numbers forgetting the building is not in a vacuum.