11 Unit Apartment Opportunity-WANT your input

[Chris Svendsen]

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My realtor got a listing for an 11 unit apartment building in an area where these rarely come up for sale.  This building is setup for low income housing right now, tenants have very low rents and landlord includes heat for everyone and covers electric for half the people.  Of the 11 units they have 7 rented, average rent is only $442 a unit.  As it sits now i will make almost zero cash flow on property but can greatly increase rents with a full rehab.  To be conservative I am basing numbers on an average rental amount per unit of $600 a unit, and  believe can increase unit count to 12 to 14 units but that is not in my numbers at this moment.  A fully rehabbed building 3 blocks down from this place is advertising 1 bedrooms for $875 a month and 2 Bedrooms at $1295 a month so my $600 a unit should be easily attainable. To reduce my cost on building I have quite a few changes planned. 

First is tenants pay electric for all units.  All units have separate meters but not all wiring is isolated to each unit on the lowest level.  Will correct that and switch these over to tenant pays electric.  That should help out to increase cash flow.

Second is I would like to zone out heating system for building by floor.  Last year the owners had to replace the 50+ year old boiler.  Thankfully, in an attempt to reduce the heating bills, they had a multi stage heating system installed with 3 identical boilers feeding into each other.  They did not zone out building but I would like to redo it so that each unit heats a floor, that way I can control temps better.  As it is now, one thermostat is for all 11 units.  Some were very warm in the mid to high 70's, others were in high 60's.  May even meter back the heating bill to the tenants but that still in air.  Old system cost about $1200 a month for heat but this season so new they do not have bills yet for new system.  Owner working on getting me all those numbers. I hope there is a good decrease in cost as new units are high efficiency BOSCH boilers compared to the massive old behemoth that is a permanent fixture in the basement.   Amazing the difference 50 some years makes.

Third change is installing electric water heaters in each unit.  Currently they have 2 large gas water heaters feeding the entire building.  Saving the gas bill on these will help lower my cost and move it over to the tenants.

Fourth change is going to be working to rent out the vacant lot next door that comes with building to a repair shop down the street who wants to use space for overflow parking.  Not sure what I can get for it but would think an additional $250 a month is a realistic number.

Well, I think that is everything.  The goods are the building has new heating system, newer rubber roof with 3 years left on warranty, updated electrical wiring, copper and cpvc plumbing feed lines.

Bad is lots of cast iron drain lines to replace, lots of work necessary to get units to a proper standard of living, and having a trucking yard close by not ideal but still should be able to bring up rents considerably. 

Let me know your thoughts on numbers in report.  Have a family member who is contractor who is my repair guy, and will be self managing building for immediate time with help of another family member who lives in area.  Once get empty units rehabbed and rented then will most likely move over to a management company.