All Forum Posts by: Mike Campbell

When buying a multifamily with a du diligence period, what is your list of things you are looking for, verifying, double checking and other?

Getting close to making an offer, the selling agent said owner wants to know what I will be looking at during the du diligence period. That got me thinking about a check of list that I should have, so please help me develop one so I don't miss anything.

Thank you for you’re input  

 Shawn;

There are major high rise apartment building being built as close to campus as possible, they rent out a four bed room apartment getting something like 1k a month per room, and getting it from the students, in my opinion what this is doing to the older apartments buildings and the ones further away from campus is causing less of a student population to rent too, and the more rental units there are, well we all know what happens, rent falls. not for the newer building but the older ones.

As far as there only being only 4 big players, not hardly, the newer buildings are institutional investors, In my opinion this is why the smaller buildings 10 to 20 or so are trying to get while the getting is good, but there numbers simply do not add up.   

 No heavy Claim damage, 3 claims in 10 years, We are getting quotes from others, country company doesn't want apartment buildings because they see them as tooooo risky, wellsfargo told us if we would have contacted them a year ago things would be different, multifamily rates are and will be going up.

 Its the different in markets, the average rent for this this building is 495,  don't know about your state but Illinois Insurance for multifamily is going through the roof, I received an insurance quote for 16k a year for a 21 unit we were looking at, taxes 32k, very expensive to business here. 

I know this has been discussed before sometime back. I'm Curious to what other are running into.  

I keep looking at apartment building for sale, run the numbers, earthier I'm doing something wrong or sellers is way off.

Example;

11 units asking 550k,

Ran the numbers, did scenarios of different amounts of down payments to see when there was a cash on cash return of at least 10%.Had to get to 50% of property value down before that happened, realistically I think the true value is around 340K. With a 100k down she has cash on cash return of just over 10%.

This is just one of many I have looked at; I’m assuming the trend is to over price and hope that an international or institutional invest comes along?

Orrrrr, am I out there like Pluto man. 

 Abou;

Don't let your emotions get attached to the building, there are asking to way to much, so let them sit on it or someone else will come buy and be foolish. 

As stated above, 1 beds have a big turn over this must be calculated in your Vacancy rate, if that lowers the cash flow, than so be it, the build is worth what the numbers say it is and that's it.

I have been looking at several building of late, the owners are way out there, one would have to come in the deal with 50% or more down to make the numbers work.

Even when I come in and sit with them show them what works and what doesn't with the numbers, they say, well you just need more cash down, it's nuts I tell you. 

keep an eye on the building, watch for the realtor sign to come down, which will eventually, than contact the owner and start talking, create a relationship, this all will take time.

As they say, KEEP AN EYE ON IT. 

Abou;

I have experience in buying distress 8 unit with two tenets.

The 1st thing I did was to visit each unit make detailed notes as to what was needed to bring that apartment back to life to attract the higher end renter.

Than, inspected the foundation and the roof, attic, common areas, went to court house looked up records on property, spoke to building inspector,They usually have some inside info on things that nobody else has.

While doing the above, find out what is market rent is, this will help determined cash flow after repairs.

What I did to get renters in, as soon as I finished remodeling an apartment I started advertising for rent with a lower rent rate then others in the market, the idea is to get her fixed up and all unites occupied, as soon as that happens you can start raising the rent. 

Don't just put a body in there to put a body in there, you wont have the time, energy or money to evict at this point.

Take cost to remodel plus cash flow to the bank with your asking price, if you can get a pre approval to buy the property than present your offer with what is needed to spend on property.

It took me a year to get the bank to take my offer, once a month I would stop by just to say high, they had other offers, but then they would go to the building find out what a disaster it was and either walk or change the offer, the bank always said no, why you ask, because not one of the offers came with a pre approval, unbelievable, cash talk BS walks.

The Bank I received the loan from looked at the remodeling numbers than market value after completion, I took the banker on a tour of said property showed the my written plan and bingo, he says this is a great deal. BOOM.  

Like I said, took me a year to land the 8 unit, it can be done, you have keep working it out.

Sorry for all the blah blah above.

Mike

 Russell

Thanks, this is what I'm looking for, different assumptions / offers, if there are several feed backs all with in a certain range and or average offer price then I would know I'm close or way off.

Mike

 Matt

Say 10 cap rate. Come up your own scenario what would work for you

What would your offer be, rough estimate?

What would your P%I be ?

21 units total gross yearlyincome 201,600

5% Vacancy

Expenses

PM 10% of gross ?

Taxes 32k year

Insurance 16k year

maintenance 10 % of gross ?

Common area utilities 1,500 yr

Reserve put away 12 yr

Thank you for your thoughts

Mike