Advice on 10 unit apartment complex

[Andrew Jackson]

Hello all, I'm seeking advice on a 10 unit complex with 8 1 bedroom units and 2 studio apartments. The complex is:

$300,000

Down $60000

Rent income assuming $400 per unit= $48000 per year

Management at 10% rental income $4800

Maintenance $2500

Taxes $2000

Insurance $1500

Vacancy assuming 10% $500

NOI $36700

Cash on cash 61%

It seems like a great deal, if I'm missing something (which I'm sure I am) please let me know. There is a for rent sign through a property company outside, however on their website they are not advertising any units available so I'm assuming it's at least 80% occupied.

I currently have 10k for the down payment, which obviously won't cover all of it, so I was considering a hard money loan. It seems like hard money isn't really not an option for me as I have little skin in the game (duplex with ~10k equity), and I don't think the complex will appraise for > 300k. If the hard money lender does 65% of what it is listed at (195k). I did notice the complex was last purchased for 135k via Zillow, so I was wondering if I could leverage that in my offer (I honestly don't even know if that's reliable or accurate)? So maybe offer 200k and get them down to 195k if they accept, then refinance a year later to pay off the hard money lender? I want to get it under contract to inspect, but shouldn't I know that I have funds prior to doing this? I get that I can put earnest money down and just lose that money if I can't come up with the full funding, but I don't want to waste people's time and seem unreliable. So am I aiming a little high here and need to save more money? (I can save about 4k a month) Any advice is greatly appreciated. And if I need to clarify more I'm certain that I can.

Thank you,

Andrew

[Adam Sheren]

@Andrew Jackson

If the property is listed with a Real Estate Brokerage, then my advice to you would be to find a reputable Commercial Realtor and work with that person. They will be able to (or should be able to) advise you on cap rates, lease rates, vacancy rates, etc.

He/She may also be able to help you find out whether or not the property actually sold for $135K and if so, when that was. If it was 25 years ago, it has no relevance today, however, if it was in the last 5-10 years you'd want to know how they added value to substantiate that new asking price.

Best part about hiring a good Agent, is that their services are typically paid for by the seller through a commission split with the listing Broker.

Have you been able to verify your figures? Were you provided a rent roll, or financials from the previous year or 2?

Did you check the county website for the property taxes? Did you calculate your tax expense based on what the new taxable value may be at a purchase price of $200K? Not saying the assessor will automatically increase the taxable value, but he/she could.

Did your quote for insurance come from an agent?

How familiar are you with the area? Have you been inside to check the units, the basement (if any), have you actually reached out to the PM to inquire about the property?

If it's not listed, then perhaps it may be best to start with LOI (letter of Intent) and submit that to the seller) you could structure the terms to give you time to perform the due diligence to the extent of your satisfaction. This would also allow you to hash out your potential future purchase price so that you could structure your financing around that figure.

Thanks, and good luck!