Apartment Multi-Family Deal Analysis For You...

[Daniel Yoo]

Ok here's the background info:

225 Unit - Class C Property in TX
$535 - 1 bedroom rent, 100 units
$710 - 2 bedroom rent, 125 units
Monthly/Annual Potential (Gross) Rental Income - $142,250/$1,707,000

60% Occupied
Annual Actual Expenses for 2009 - $800k
Roofs need repair, numerous code violations (electrical wiring exposed, stairs to 2nd level need to be replaced, support beams for 2nd level need to be replaced), A/C's are old and some are not working. Estimated total rehab per contractor - $4500/door.

Property owner has been in Europe for past 3 years, general neglect of property. The property is in a strong rental area, land is assessed at $5/sqft per tax assessor. Rents are below market, comparable market rents are $.85/sqft.

1) So what price would you offer for this property? (Not listed, off-market property. Owner entertained $3.5M Purchase Price)
2) Also, what would the value of this property be for a proforma of 90% occupancy? (local market cap is 9%)
3) Deal :rock: or No Deal :nono: ?

[Ralph S.]

Daniel
Matt is right on the DD needed before crunching numbers.

What's behind the 60% occupancy? If rents are below market and still at 60%, chances are many of the renters are undesirable and the purchaser is looking at undergoing a 100% turnover in renters, hence a real need to be cash rich to weather that storm. What kind of bad rap in the community (drugs, crime, etc) does this complex have, that you'll have to deal with and overcome?

What do you bring to this project? Are you experienced in doing this, managing constuction and contractors, managing a large complex. You got the large cash outlay? Can you build the business plan, support it with good research and walk into a bank and convince them that you have the moxie to pull this off, or are you paying cash? Or, are you just looking to birddog or wholesale this?

All that aside, at $3.5 Million, or $15.5k per door, plus repairs at $1 Million or $4.5K per door, it's right at $20K/door. Not bad, if true.

Expenses per your post, of $800K is $3,500 per unit, or $296 per unit per month. If your version of "expenses" are the same as the OE as described in the 50% rule (you can look it up - search BP forums for '50% Rule'), it's at 47%. That's ok, and can likely be lowered with better tenants and after a rehab.

With an average $632/door gross rent and an acqisition/rehab cost of $20K, it exceeds the 2% rule (again, look up the 2% rule), coming in at 3.2%. If there is a rent upside, after repairs, all the better.

Ok. Good enough to look into. But, it'll take a lot more than crunching numbers, hanging an "under new management" sign and filling the parking lots with contractors trucks.

What to offer? If you really have the cast iron stomach and can muster all the resources to make this turnaround work, I'd go down to the courthouse, find out what mortgages he has and approximate his outstanding balance. Offer just a little more than that. Give him a little pocket money and get this monkey off his back. At worst, it's a starting point for further negotiations. I don't think there are too many individual investors who would be up to this size and scope of project, and probably fewer banks who would make a loan on this.