10 UNIT APARTMENT CAP RATE GREAT BUT HIGH FIXED COST HELP!

[Henry R.]

Hello BP Nation,

I would like your thoughts on this please.

I took a look at a 10 unit for the first time. It's a brick building built around 1920. It has been rehabbed some time ago has sheet rocked walls, breakers, carpet, etc likely completed in the very early 90's. Needs some work to 3 of the vacant apartments. right now rents are 4500 per month fully rented 6500K per the owner this is accurate. 5 units are 2 bed rooms, the other 5 are 3 bedrooms. Rents are a little low from 650 to 750. Outside needs some brick work in a few places (pointed up).

Tenants pay own heat and electric ( forced hot air) Flat tarred roof. The cashflow is low for me at 1300 or so. Good connection with the owner wants to sell to to do other things, no time, tired etc. Mention a few times knows it needs work would like to get 350-400K, however I would not pay 350K. High taxes and water/sewer. The numbers look great, however I don't really like the overall numbers. Am I missing something?

Thanks, see link below.

https://www.biggerpockets.com/calculators/shared/136829/c09ed519-32e0-4c24-98e2-d6f494b54e00

[Brian Green]

@Henry R. 

Couple things that stand out to me. Renovation estimate seems light; $3k to update several apartments and repoint parts of the exterior brick work? I'd budget much more; even if you are doing the bare min to the interiors of those empty units(paint&some flooring maybe) along with the brick work = $10k+. 

R&M as well as trash seem light as well.  25+ bedrooms in the building you'll need a dumpster - in the Albany mkt that's at least $250/mo. 

CapEx budget moving forward I'd also increase for a 100yr old building. If that roof needs replacing you're looking at $20-$25k easy. Budgeting for $4k annually isn't going to get you there.

It's largely irrelevant but that building probably wouldn't sell at a 7cap given its age/condition/location. I just recently refinanced a 6 unit in Mechanicville NY after renovating everything and the appraiser used an 8 cap.  Its probably more like a 9 or 10 realistically. 

On the banking assumptions - I'm curious where your getting 30yr amort on a commercial building under $1million(not agency eligible).  All the local banks in the area that I've seen will only provide 25yrs.  If you know of a bank with 30yr please let me know!