All Forum Posts by: Lester Schmitt

@Henri Meli I wanted to thank everyone for their input and contributions to my education. To close the loop on my end of this discussion, the seller never did counter and I could not find property management for this apartment building. So I am looking at other properties

@Henri Meli I want to add to the discussion that the 12 unit that has been redecorated and put up for resale after16 months and that i am saying is comparable is listed at a cap of 8%. I am looking to buy at 10% cap for 10 units that needs rehab

Henri, I really appreciate your succinct assessment of this property. I have been doing more exploration into the area and here is additional information I have learned--

1. Is the high vacancy rate typical for the area? How long does a similar property stay empty?

The high vacancy is atypical. A similar property that just came on the market had 2 of 12 units vacant in January 2018, filled one in Feb, and was fully rented in March at the higher rate of $650/month.

2. What are comparable properties rent for in that market? Why is this one not renting?

A similar property has just come up on the market. 12 unit apartment house all two bedroom but also has a 3 BR house on the property. Bought in July 2017 for $375,000. Excluding the Single family home, the rent roll for the 12 apartments in January 2018 showed rents ranging from $520-$650/month, two vacancies, GRI of $5655/month ($67860 per year). In August, the 12 units were full and the monthly GRI was $7515 (Annual =$90,180)

The 10 unit I am evaluating has high vacancy, I believ, because the owner rents month to month, does not supply stoves and refrigerators in the units, and has dingy looking interiors that are safe and in good repair, but look dreary. Dark panelling, dim lighting in the common areas...

3. What are expected rates, once the property is stabilized?

Based upon the similar property that came on the market and has been redecorated, the target rents are now $650 instead of $700/month. The comparable property put washer/dryers in each unit. Mine would not. The comparable property is in a more industrial/commercial area and potential flood zone. My target property is in a residential area with single family and duplexes primarily owner occupied and not in a flood zone.

So if I were to buy at $250,000 and put $50,000 CAPex into the property, my NOI would be $40,368 and my cash flow would be $19,000/ year.

One other consideration is that my preferred property management, which is local to the area, now only handles 50+ unit properties and the only other property managers are from 45 min to an hour distant to the property.

The seller did not counter my previous offer, I would like some owner financing of 10-15%. Should I push for a counter from the seller or submit a higher offer first?

I look forward to the feedback on this topic. Is it time to get an accepted offer and wholesale thisor partner with someone?

I heard back from my buyers agent that the seller's agent rejected my offer without countering.

@Joel Owens This goes back to my wondering about my offer , whIch I have yet to hear back on. I InItIally wanted to work off the seller‘s number, but investigated more and numbers I could confirm lead to an offer that I felt would be insulting to the Seller. Now I know intellectually that I should not be afraid to make an offer based upon accurate info. But I waffled and upped my offer to something that was more comfortable to me. It should still work out, but i wonder if others new to commercial have felt like that.

I wlll check on that. I toured 4 empty apartments that were getting recarpeted. 

I will post the seller's response when I learn it

The 10 units are all 800 sq. ft units and the building has ~9,000 square feet in area. Definately below replacement value so that is one way to assess this that I had not considered.

@Henri Meli Well, as I said, I have only just made the offer. This is a C- building in a B/C area. Single family an duplex homes in the neighborhood, primarily owner occupied. I would look to hold for many years if I bought and re- habbed. In 2-3 years I would pull out some equity to invest in another property. Looking at these investments as additional retirement income.

@Mike Dymski I have a decent knowledge of the rents and $700 is realistic. The building has good bones and the infrastructure such as. Wiring, plumbing, windows are modern and in good shape. The interior is tired and dreary. The current owner rents month to month and I suspect gets some cash rents that don’t make it to the schedule E. He rents without stove or refrigerators and the tenants have to Bring in their own. There is much interior sheets of darkpaneling, but good lighting from windows. How would I determine vacancy rate in the area?