24 Years Old, 82 Units

[Kyle R.]

Before I start, I'd like to thank the BP community. I've learned quite a bit during my tenure as a forum member and consider it an invaluable resource. To begin, I'm 24, a part time real estate investor and full time financial analyst. I started investing in 2013, primarily purchasing class A condos. Over the last year, I've shifted my focus to multi-family and sold the majority of my SFH/condos.

My most recent acquisition was an 80 unit apartment complex. The deal was off market, located in NC, and sourced through my realtor. The property consists of 17 buildings on 7 acres containing 32 1BR/1BA units and 48 2BR/1BA units. It’s a class B-/C+ property, relatively low income, mediocre public schools, and low crime. One of the reasons I targeted this complex was due to the strong growth rate in the surrounding area. A private university recently announced they’re building a graduate campus within a mile of the complex. Around 200 student’s need housing within the coming 5 years.

Most of the tenants have lived there several years, some dating back to 1993. The vacancy rate has averaged 3.5% over the last 3 years and it’s currently 97.5% occupied. The previous owner had rents 25% below market at $300/1BR and $400/2BR. Current market is $375-$400/1BR and $475-$500/2BR. Rent is being raised $50/unit for current tenants. I’ll be billing water back to tenants next year, which will add $30-$45 per unit. Electric is sub metered and trash is already billed back. After both increases, rent will be nearly at market. Also, a laundromat is on site containing 5 commercial washers and dryers.

In terms of condition, the property has little deferred maintenance. A few water heaters are beginning to leak and two sidewalks need repair as they’re cracked and considered a trip hazard. Also, a few minor holes exist in the siding. Total estimate to fix all issues is around $5K. The property is on city water/sewer which is a plus as I’m not a fan of septic tanks. Roofs were replaced in ’07, should be able to get another 10 years out of them.

While the property is stabilized and structurally sound, it has been mismanaged over the last 10 years. As mentioned prior, rents are below market. Also, when a tenant’s lease expired, the previous owner let them stay on their current lease month to month. As a result, 90% of my tenants are on a month to month lease. I have management approaching 8 tenants per month to sign a new one year lease, that way all do not end at the same time. I’m not concerned with a mass exodus of tenants leaving as most month to month leases have been active for several years.

All financials are in terms of year aside from cash flow. Also, I've included a picture of the property below.

Purchase price - $1,198,500 ($14,981.25/unit)

Financing terms – 20% down 5.1%/20 years

Rental income - $345,600

Laundry income - $6,000

Maintenance/CAPEX - $55,296

Utilities (water/sewer) - $41,123

Property management – $27,648 (8%)

Vacancy allowance - $17,280 (5%)

Property tax- $14,452.67

Insurance - $13,191.95

Variable expense - $10,000 (mostly bad debt)

Pest control - $5,923

Tenant sourcing fee - $3,600 (assumes 25% yearly turnover)

Lawn maintenance - $3,200

Court costs - $2,000

Monthly cash flow - $6,891 ($9,705.91 after $50 per unit rent increase, $12,706 after billing 90% of utilities back)

[Andrew Emery]

Congratulations on this deal @Kyle R. This post is a prime example of why BP forums are such a great resource and value. @Chris Eaker popped in without any hesitation gave a huge piece of advice that probably saved Kyle a bit of hassle in the future. Who knew that about RUBS? I didn't! I didn't even know RUBS were a thing. Now I do and when I go looking for my first large multi unit complex I'll know and I'll look into whether or not I can do it wherever I am purchasing.

(I didn't search to see if there was a definition on BP) 

Definition of RUBS: Ratio Utility Billing System

A Ratio Utility Billing System allocates the property’s actual utility bill to the residents based on an occupant factor, square footage factor, or a combination of both.