NEED HELP ANALYZING APARTMENT PURCHASE

[Jason Green]

Ok guys here is the rundown.

(2) buildings of 12 units are built. 6 over 6 plan about 900 sf each unit. 2br 1ba all units are identical. Of the 24 units that are built 8 need carpet and cleanup to be move in ready.

The plans call for 192 total units on site plan.

12 of the available to rent are currently leased at $550/mo.

Includes 17 acres of commercial property worth about 10k an acre. Also includes 200 partially finished storage units.

This is a bank owned property that has been in the portfolio for about 2 years. Original asking price was 1.675 million. They dropped the price today to 1.1 mil. They are very motivated and we are thinking of an offer around 900k and we are confident they will take it. I am in the apartment construction business so building it out is no problem. I have never owned apartments and I need help with the costs associated with it other than the debt service. The deal will almost cash flow without building anymore units. I think it is a goldmine but my partner is very calculated and will want hard numbers. So any help or advice with what costs to figure when calculating whether it will cash flow will be very helpful.

[Jon Holdman]

Over the long term, and for a lot of units, operating expenses, capital, and vacancy for residential rentals will amount to about 50% of your gross scheduled rents.

Less data for mini-storage, but the one I'm involved in is surprising close to the same 50% figure.

For $550 in rent, the 2% rule works pretty well, which says you can afford to pay about $27,500 per unit. That assumes residential financing terms, though, and you'll probably be paying a higher rate and have a shorter amortization period.

Using that $27,500 figure, the 24 existing units are worth $660,000. Subtract off the cost of the repairs.

The 168 unconstructed units are worth the same $27,500 a piece, less the cost to build them.

Sounds like the commercial land is worth about $170K.

The value of the mini-storage would need to be figured out from the rents. Take the rents, divide by two, subtract your desired profit and that gives you a max payment. Compute a PV using your terms and you get a loan amount, which I would use as the price. That's equivalent to giving you the same return on your down payment money as you're paying on the loan. Subtract off the cost of finishing the construction.

So, I get roughly $830K, less carpets, for the existing apartments and land. No idea if you can construct the remaining units for under $27,500 a unit. Or how to value the mini-storage. But seems like a potential deal.

You also need to be sure there is demand for all these various investments. And you need to be sure you can't just buy existing, similar properties even cheaper.