Deal Analysis: 23 unit apartment complex

[Jody Leblanc]

I'd like to get some feedback on this property.

All-BricK, 4 buildings, 2 story, pitched roof, good exposure on main thruway
23 Units
1 occupied by on-site manager

asking price $690K, supposedly hitting 72K NOI, no great, but maybe decent.

[URL]http://s1363.photobucket.com/user/jodyleblanc1/media/ProvidedFigures_zps4fea7de9.jpg.html[/url]

Looking at provided figures (see above), it looks like an ok deal, but digging deeper and using my OWN assumptions of numbers, not so much. But before I offer 70% asking price, I wanted to see what the good folks at BP thought of my numbers.

-------------------------
143,040 Income (at full occupancy)
7% vacancy ~ 10K
133K adjusted income

Expenses
Taxes
7,500
Insurance
7,500 - 8,500
On-Site Mgmt "Salary"
8,000 (does this need to include Soc Sec, worker's comp, etc?)
maintenance
13,800 (manager handles light maint 600/unit)
Capital improvements
6,900 (300/unit)

Utilities paid by owner
Electric
15,000
Water/sewer
10,000
Trash
4,000
Cable/Sat TV
??? - (I'm guessing 7,000)

Other Expenses
Pest
700
Lawn
500 (onsite manager cuts grass, this covers equip & fuel)
Advertising
500
Misc
1100

On the surface, it's not working, since Exp are 84K and NOI is 48K, no where near the 72K they show. I'd expect at least 65K NOI based on adj rents.

BUT, owner pays Water, Sewer, Electric, Trash, Cable/Sat TV - 37K-ish (ouch, but possible opportunity)

If I push those back out to tenants (let's forget the investment to do this for the moment), say 30K back, then I have to lower their rents by about 22.5. Then we're at 110K adjusted income, 54K expenses, and 56K NOI. so, suddenly this becomes a reasonable ratio again. Only, at 56K NOI, figuring 10% cap on a turn-key, still only worth 560K on the street. (10% is common in this area).

An upside is the idea of then bringing rents back up to near where they were.