12 unit apartment complex possibility

[Warren Straley]

I have been managing this complex for three years now, and know it inside and out. 12 total units (5 buildings on slabs. Three duplexes and two triplexes. Ten two bedrooms and two one bedrooms) decent part or town, but nothing to write home about. Units are about 30 years old, but had new roofs in 2011, and I have slowly been replacing water heaters, ACs, etc. All need new doors and windows, but otherwise they are nice, good condition, clean aparments. I have a waiting list to get in to be honest.

Gross rents are $63,000. NOI is $42,000 after taxes, insurance, maintenance, and 3% for vacancy. What should this be valued at is my question.

[Ben Wilkins]

@Warren Straley - if you use the 1% rule that some investors use when first looking at a deal, that would price the 12 units at $525,000.00 (taking $63,000 annual and dividing into monthly = $5,250. Divide that by 1% and I get that price that I mentioned)

While this isn't my suggested selling price, it's a place to start considering.

If you assume 6% cap rate in your area, that would also land somewhere near the $500k range. Again, just a starting point to consider.

That said, I do have some partial advice. If you consider this as a commercial sale with all 12 units combined, your sale will be based a lot on the income that the properties make. You might deal with some comps since these are all duplexes and triplexes, but I would look at it as a commercial property if I were to consider purchasing.

If you have a long waiting list, I am going to give a good guess that you are renting below the market average in your area. As such, your potential sale will be less than you could make if you raise rents so that they are closer to average in your area. Try RentJungle or Rentometer to see what average rentals are for your area.