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Updated over 7 years ago on . Most recent reply

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9
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Shawn Reisner
  • Albuquerque, NM
2
Votes |
9
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Apartment complex seems too good to be true. What am I missing?

Shawn Reisner
  • Albuquerque, NM
Posted

Hi!  I'm looking for my first investment property!  I found a 6 unit apartment complex that consists of a building with 2 units next to a building with 4 units.  All 6 units are rented out already for a total of $3545 per month.  Here's what I'm looking at to analyze the property:

Price of Property

  • Asking Price: $225,000
  • Negotiated Price: $195,000
    • This is the value I'd try to negotiate for the property since it's been on the market for well over a year and the county assessor has assessed the property to have a value of $172,400.

Upfront Cost

  • Estimated Closing Costs: $5,000
  • Estimated Repairs/Rehab Cost:  $1,000
  • Down Payment: $195,000 x 20% = $39,000
  • Total Initial Investment:  $45,000
    • This is equal to Estimated Closing Costs

      Estimated Repairs/Rehab Cost + 

      Down Payment.  I use this to calculate COCR.

Mortgage

  • Mortgage Amount: $156,000
  • Mortgage Period: 30 years
  • Estimated Mortgage Interest Rate: 4.5%
  • Monthly Payment:  $790.43

Monthly Expenses

  • Taxes:  $331
  • Insurance:  $100
    • This is just a guess but doesn't affect the final numbers very much
  • Vacancy: 3% of rent ($76.35)
  • Repairs: 5% of rent ($127.25)
  • CapEx: 10% of rent ($254.50)
  • Total Monthly Expenses:  $1679.53

The problem is that with that much monthly cash flow, my COCR is close to 45%, and I'd allegedly be bringing in almost $2,000 per month in profit. I feel like I must be missing something because this property has been on the market for so long and not bought up yet. Let me know if you'd like more information.

I have two questions:

  1. Am I missing anything obvious with my numbers here?  Anything else I should take into account or that looks wildly off?
  2. What reasons might there be for this property to have stayed on the market for so long that I'm not seeing?

P.S.  This is my first post - am I allowed to directly post the realtor.com ad for reference?

Most Popular Reply

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22,059
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Jon Holdman
  • Rental Property Investor
  • Mercer Island, WA
14,128
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22,059
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Jon Holdman
  • Rental Property Investor
  • Mercer Island, WA
ModeratorReplied

Are these two separate but adjacent properties or just one property? Not buildings, the legal description. If these are two separate legals, you could get conventional loans. If only one legal you'll need a commercial loan. You might get 20 or 25 year amortization, but there will be ARM or balloon terms involved. You'll need to talk to local lenders. You're expected rate may be a little low and your downpayment may need to be 25%.

Your cash on cash calculation is incorrect. Your $431 a month cash flow looks correct, and looks reasonable. That's $5172 a year divided by your $56K investment is 9.2% COC. Your cash flow estimate may be a little low, but if these are older building with owner paid heat, maybe not.

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