Help me analysis this deal

[Tracey Williams]

I found an apartment complex that is been foreclosed on. The last owner paid $3M for it a few years back.
- 100 units that is 60% occupied
The current rent is $520/units. The asking price is $1.3M but because am going to be using private money or equity partners, I want to be sure what price to offer.
It's in a nice location, 10 of the units that are not rented needs complete rehab while others needs cleaning and painting. The rehab estimate is properly going to be around 100k. The inspection report shows the roof can still be good for another 10-15yrs.
The occupancy rate with other apartments in the area is around 75% - 90%
I have tons of documents from the seller that I do not understand and will really appreciate anyone willing to help me understand it. I'll be glad to PM them to you. The bank is trying to employ a new management in place.

My questions is what will you offer for this property? Jon and others with broad understanding of the 50% and 2% rule input will be greatly appreaciated.
Thanks

[Nathan Emmert]

50% rule simply states that half your Gross Income (over the long term) will go towards expenses. The other 50% is for debt servicing (mortgage + interest) and your "real" cash flow.

2% is a good rule of thumb for evaluating units that rent for $500. Essentially, you want rents to be 2% of purchase price. Buy a place for $50,000, you want $1,000 in rent. After your 50% expenses, you have $500 to pay your mortgage (call it $250) and cash flow (remaining $250).

So looking at what you have there. $520/unit * 100 units = $52,000. The 2% rule would value that property at about $2.6M - repairs.

If they're only asking $1.3M, that seems to be a warning sign. Your vacancy rates are pretty broad. The 50% rule is generally built on closer to a 5% vacancy, 25% would obviously drop your income. Why is the place only 60% occupied now? Sounds like you have 30 units that could be rented which aren't at the moment.

The numbers look good... the trick to you will be to understand why the numbers are good.