What would you offer? 56 units

Question

Because this is always everyone's favorite game on here :)

I came across a lead yesterday while looking at another property in the area (about 40 miles south of Louisville, KY)

I went to take a look at the property and I liked it, for the right price of course.

I spoke with the owner who lives in Florida and the only information I could get out of him at this point was the following:

56 units

Built: 1988

Combination of studio, 1 bed, and 2 bed

All 1 story units.

The property was in good condition, recently painted, no major deferred maintenance I could see although I could see spending 50k to address some minor issues.

%100 Occupancy (Skeptical I know, but a prior dead listing from 5 years ago did say they had a waiting list and inspection of the property led me to believe it was at least pretty close to that)

Monthly rental income: $24,000 ($428/unit), Annual rental income ($288,000)

I'd have to look into the exact market a little closer but I think rents could be raised at a minimum of $25/unit/month.

The prior listing also stated it had an 8% cap (again 5 years ago)

Owner said his mortgage was $8,000/month (96k annually)(Not sure if this includes taxes or insurance)

Tax rate 1.1/thousand

The owner stated he makes 56k a year off of the property after he pays everything including his mortgage.

Thats all I got, but he asked that I call him back to talk more about it.

Given the provided information, what is a ballpark you think this property would be worth??

Thanks for your time in advance.

Brandon Stevens · Answer

Thx for your input Andrew. Funny you bring up the roofs. Most of my former life was spent as an insurance adjuster and the lead to the first investor came from a former colleague working in the area after a hail storm. Long stpry short, the owner is anout to get new roofs on all 9 buildings...at least a150k cap improvement based on my ballpark measurements. A walked the property again today and noticed a small coin laundry area, some additional deferred maintenance and evidence that a lot of the tenants appear to be long term. The units have little outdoor areas in which the tenants are apparently able to decorate how they wish, lets just say its easy to see who has been there a while and that most of the the tenants are older.The owner also pays the water so im hoping between that, the low rent, and deferred maintenance that there is some real value add opportunity depending on what he thinks its worth. I hope to be gettimg some better financials this weekend. Ill let ya know.

Andrew Johnson · Answer

@Brandon Stevens Oh the fun of trying to create a value from incomplete information :-) Things that pop into my head:1.) The property is 29 years old so you might be right on the cusp of a dead 30 year old roof. I always love the idea of "35 year architectural shingles!" but they never seem to quite last that long. Roofing for 56 units isn't cheap but that cost will depend on how those units are laid out.2.) With an average of $428 per unit that means those studios *might* be under $400/month in rent. I don't know if you've never walked through sub-$400/rent units but it's...well...different. To be overly general, they usually reak of deferred maintenance and turnover costs are disproportionately high as a percentage of rents.3.) If the owner lives in Florida and it's 56 units I'd imagine there is a property management company involved and/or an onsite property manager. If there is, great, get all of the numbers from them on collected rents and expenses. If there isn't, I'd probably factor in a heck of a lot more than $50K in deferred maintenance. It's 56 low-rent units run by an out-of-state landlord.So, who knows...but for fun...$24,000 gross rents @ 100%$20,000 collected monthly rents$10,000 NOI after expenses (I know, it's lower than 50% of gross rents but it's a lower-dollar property)Maybe it's an 8-cap market so: $120,000/.08 = $1.5MMI'm guessing there's way more deferred maintenance, might be a roof coming due, etc. so...ummm...$1.25MM?

Jason Chen · Answer

i think this is a fair appraisal and the 1.25 million might be an ok. i wouldnt go much higher than that, but at $25,000 per unit, that would make it 1.4 mil, which wouldnt be goodat $400 or so per unit, we're talking about a different class of property vs $650/month (duh)I'd offer 1 million max because of all that square footage. gotta think about how much new roofing is going to cost to cover that much area (its gonna be a lot)I think for $800,000 and below is where you start to get into serious bargain territory, and $600,000 would be an absolute steal