34 Unit apartment complex

[Khemaro N.]

Ok my realtor sent me an email for a turnkey deal. it's a 34 unit apartment complex with management already in place. Strong well maintain community. The purchase price is $2,040,000 It was built in 1998, cap rate is 7%. Gross income is $270K. Net operating $142k. I like the numbers. How would I go about financing such a deal? I know nothing about commercial lending.

[Andrew Johnson]

Khemaro Nuon For this deal, I’d guess your debt service is going to be $105K per year. And that’s assuming 75% LTV, 25 year amortization and a 5% rate. I think those terms are on the favorable side of reasonable.

What I will point out is that NOI on pro-formas seldom (if ever) includes a holdback for cap-ex. So I just grab 8% of gross rents for a cap-ex holdback that’s $21,600. That means your debt and cap-ex payments are $126K with an NOI of $142K. Annually you end up with $16K in cash-flow.

$16K / $500K down payment = 3.2% cash-on-cash return

When you look at the seller provided (mild eye-roll) NOI calculations does it include any kind of cap-ex holdback? If not, welcome to 3% cash-on-cash returns :)

But you do get to pay down some principal so you got that going for you...