Value Add 24 Unit Apartment complex, Help!
Hey everybody, I've been following a multifamily property in a city on the outskirts of Tampa, FL. I First saw it when it was priced at $950k. It has recently dropped to $660k. It is 24 Units (2 buildings) which are all 2br 1ba apartments. 800sqft in size and all have their own washer dryer hookup. Each unit is separately metered for electric, water, and garbage billed from the city. It is wood frame with concrete slab for foundation. The seller has neglected lots and lots with this property. It needs a new roof on each building and there are lots of broken/plastic windows. The units are equipped with central heat and air with duct work but only about 6 are in use. The rest use window units. The property also has a pool which is locked and not in use at the time.
I have a had a couple contractors do a simple walk through of the grounds and 2 vacant units. They both estimate between $200k-$300k in repairs depending on what the other occupied units look like inside.
The seller has no leases in place (all month to month) and collects cash each month. He cannot provide any financial info as he does not keep records. He is willing to provide seller financing with 35% down. Tenants are currently paying $450/month. After some research and talking with a property manager and other landlords in the area, the units should support $800/month with basic amenities and nothing too fancy. This property seems to be in D class condition in a C+ maybe B- location. Typical Cap rate in the area is 12%.
Since I am starting from scratch I would like any and all help and advice with this deal. Here are the numbers I have so far in its current and future state:
Current situation / Potential stabilization
Asking price: $659,000
Gross rents @ $450 =$129,600 / @800 = $230,400
Vacancy @12.5% (3 units vacant now) =$16,200 / Still @12.5% = $28,800
Effective Gross Income = $113, 400 / $201,600
Expenses
Property management quoted @ 10% = $11,340 / @ 10% = $20,160
Property Taxes= $7,000 / (likely increase over time, how much? not sure) $9,000
Insurance quoted @ $14,000 w/ wind coverage or $8,000 w/out wind coverage (I would love to hear your thoughts about this and how you insure) This does include liability coverage with pool included.
Maintenance and Repair @ 10% =$12,960 / $23,040
Pest control=$1,680 / Same
Reserves @ 7% =$9,072 / $16,128
Total Expenses = $56,052 / $67,880
NOI: $113,400- $56,052 = $57,348 / $201,600- $67,880= $133,720
Cap Rate= 8.7% / (with the addition of the rehab of $300k to the ask price)= 13.9% cap
To buy at a 12% cap I would have to pay $477,900 is what it looks like.
My question is, ( well I have tons of questions but I will start with this) do you feel my projections are reasonable? What am I leaving out or over estimating?
I also am not sure of how much my expenses will actually increase as the rents are raised to market value. I could be way off on my second set of expenses listed above since it is no where near the 50% rule.
I also understand the rents will not go from $450 to $800 over night. And I understand there will be more economic loss/vacancies. I would like to know how much I can expect in those losses. Also what should I estimate for eviction costs and other costs I am totally missing?
I hear of some people going full charge and kicking everyone out and doing full rehab and re lease ASAP. I also hear some say they plan to turn over 2 units per month to hold on to some monthly cashflow. I would love to hear your thoughts and advice about your value add strategies.
Sorry this is a bit long, I just really want to make sure I am covering all my bases to go into this the right way. I know you will probably have other questions for me and I probably left needed info out, so fire away with all questions, advice, criticism, insults, and jokes :)
Thanks so much, you guys are awesome!