18 Unit in Great Shape!

[Logan Reinard]

So a family member of mine is getting ready to sell his 18 unit apartment complex off market. I've tried to go the route of owner financing but he'd rather just pay the capital gains tax and take the remaining profit to pay off all of his debt so I'd have to go the way of a conventional loan.  The sale price that he would accept at this moment is $480,000 which is $26,600/unit.  Our market is CRAZY cheap in this area and rent is cheap as well.  The apartment complex has 3 separate buildings with 3 new roofs that have been completed within the last 8 years.  The owner converted the rubber roofs into pitched asphalt roofs, newer furnaces within the last 4-9 years, with some newer features like floors, plumbing etc.  

All and all this is a very well maintained complex.  

Only drawbacks to this property is that I would be buying it at the top of the market, meaning it probably wouldn't appreciate much more.  Also, the rent per unit is only $375/month which could be raised but for a one bedroom/one bath you can't be asking for too much.  Renters do cover mostly all utilities and pay for coined laundry services.

Let me know what you think about this... I probably have a couple holes in my projections. I wasn't too sure what closing costs would look like on this sale. I plan to be quite aggressive in the pay back and probably not take much out in terms of "pay" so that I could build a hefty Capex fund then hopefully pull money out of the equity to purchase another multi unit property.

Thanks in advance!

Logan - NE Ohio

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*This link comes directly from our calculators, based on information input by the member who posted.

[Tchaka Owen]

@Logan Reinard - this is more accurate. Personally, I need a minimum of $100 per door so these numbers don't quite work for me, however I do see potential. 

1. Most calculations are done on a 30-year, not 20-year (note: some commercial do 25, which is fine). That longer term does reduce your monthly obligation a bit which helps your numbers. Note: you can always pay more to reduce the term if you want.

2. Rents will go up. I suggest you run with $425/mo for your own peace of mind, because within a year or 2 the rents will be that high.

Note: leases must be honored so even if you closed on it today, you cannot raise rents on those with leases. If the units are in great shape, I'd raise to $425 for those without leases. Some will stay and others will leave; get new renters for the vacant ones. As each lease comes for renewal, raise those too. But see what the market bears. Maybe $410 is the magic number, if so....go to $410. Those two actions alone (25-year loan and rents to $410) increase your cashflow from $1113 to around $1775. Awesome.

Good luck!