Would you consider this 10plex and if so, at what price?

[Natalie Kondratenko]

I am a new investor and have two properties (3/2 SFR in middle class neighborhood and a 2/1 1/2 duplex in low income neighborhood) in the Lafayette, LA metro area.

I am interested in apartment complexes because of the cashflow and not having to deal with 100% vacancies.

I came across a 10 plex for sale (C property)in a small town about 25 minutes away. I've currently got it under contract for $176k, but the financials are very weak.

Seller bought it in 2004 and spent 2004 - 2007 rehabbing it. He gutted it and put in all new plumbing, electrical, fixtures, sheet rock, flooring, appliances, etc. The building is in great shape and two apartments remain unfinished.

There are 8 2/1 apts and 2 1/1 apts. The apartments that are left to be finished are a 1 bedroom that needs cosmetics (about $3k) and a 2 bedroom that has had plumbing installed, but still needs sheetrock and everything else.

Since that time he has had it on the market starting at $340k until I put an offer on it at $180k.

I requested to see all the financial information from 2009 - now. I only received 2010 and 2011 data because it was self-managed before that point and he isn't forthcoming with the data.

In 2010, there were only 2 apts rented and the property lost money. I have been told that the property management company he was using at the time is not very responsive to low-income properties. The property manager broke off from that company in Dec 2011 and since that time has filled 7 units (one of which moved out last month).

There has also been problems with loitering and a lot of police calls to the property for disturbances. But, the property manager said that they have worked out an agreement with the police (the station is two blocks down) and they have stopped the loitering and things have gotten better in the last few months.

Since this year, the property is taking in an average of $3000 per month. To attract tenants, they offered all bills paid on 3 of the 2 bed. and they are charging $550 a month. Property Manager said the electricity deposit in the town is $300 and that people can't afford all of that up front. There is also section 8 tenant in 1 paying $460, and another tenant paying $375 without electricity. Then, there is a one bedroom renting all bills paid for $450.

There are not a lot of apts in this town, but the ones that I called on rent a 2 bed. for $550 - $650 w/o electricity and have a waiting list.

The seller is motivated as he had grand schemes to rehab this place and make a killing and it hasn't happened. He has had it under contract over the years a few times, but the price was too high.

I still think the price is too high and I am nervous because the property has lost money every year from what I can tell from his tax return (retained earnings of -85k since 2004).

I have also had a hard time doing the deal analysis, since their seems to have been such poor management and the financial data is all over the place.

Here are the facts:

Purchase Price currently : 176K
Property taxes (after adj.) $1300
Property Insurance (incl Liability) $3000
Gross Rents (using current model and only 6 rented) $34910
NOI: $17,200 (as best I can figure. this includes $100/mo per apt for electricity, 10% management, 75% finders fee and turnover every 8 months), $200/mo water, 10% maintenance.
Mortgage with 20% down at 6.5% for 20 years = $1050

Sorry this has been so long. Thanks for your help and advice...