Hi BP, I've toured a bunch of off-market small multi-families (1-4 units) in the last few weeks and I am finding it is very difficult to nail down a value and I was hoping for some help.
This property is in Birmingham, AL which is where I live where the competition for small multi-family in good areas is pretty fierce. I got this lead through a text campaign that I ran and it's a probate situation.
Here are the details:
- Layout and Location: 4-units, 3 Br 2 bath in Unincorporated Jefferson County but on the very border of a nice suburb. No crime concerns at all in this area, but not walkable to anything. Convenient to interstate and shopping.
- Current Rents: 3 units are rented at $900/mo with only 1 unit on a year long lease. The other two are month to month. One tenant will most likely need to be evicted for nonpayment. One unit it vacant.
- Comps: There are three 4-plexes that sold at the end of 2018. 3 for 273k and 1 for 340k. Multiple duplexes (some way nicer) have sold in the last 2 years for low 200's to low 300's.
- Finishes and Condition: The units are somewhat dated especially kitchens and bathrooms and finishes are C+.
- Offer Price and Justification: I have arrived at an offer price of $245K based on the following factors:
- ARV: 310k once stabilized from the comps.
- NOI and Cashflow: Gross rents of $3,200 per month less repairs ($200/mo), vacancy (8.34%), Taxes (272/mo), Insurance (166/mo), Property Mgmt (8%), Cap Ex ($300/mo), Landscaping ($100/mo) leads to a monthly NOI of $2,372 which yearly is $28,473. Minus financing assuming we pay cash for the renovations and 20% downpayment with a 20 year term at 5% cash flow is $1,084/mo or ~13k/year.
- Rehab Costs: 60k for interior paint for all units (3.5k/unit), LVP flooring (4k/unit), replacing metal stairs in back which are rusted ($10k), landscaping ($2k), replacing one HVAC unit ($6k), Sheetrock repair ($2k), appliances for one unit ($2k), and misc ($10k)
- Financing: This is a tricky one. The best way forward I see is to get a commercial note for 80% of the purchase price of 245k (20 year term at 5% interest) and to find a family friend to fund the ~$110k needed for the downpayment and repairs. Once the apartment building is stabilized, we re-finance all the money out. I am purchasing it in an entity with my business partner so might be difficult to do conventional 30 year financing but let me know if there’s a creative way.
- Repair Plan: Paint the exterior, Paint the interior, put down LVP everywhere rather than carpet, improve exterior using paint and replacing the dangerous staircase in back, and repair sheetrock where needed. Have decided not to update kitchens/bathrooms since there is a huge apartment complex down the street where you can rent an updated 3/2 for $1100 so I don't think it's worth the expense of updating the kitchens/bathrooms since current rents are $900.
Any thoughts/suggestions? Any good books on this topic?
Edit: Sorry about the formatting
