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Multi-Family and Apartment Investing

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David Young
  • Rental Property Investor
  • Lakeland, FL
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Should I do this deal? (8-unit apartment building...numbers included)

David Young
  • Rental Property Investor
  • Lakeland, FL
Posted Jul 3 2015, 18:52

Hi BP,

I found an 8-unit apartment building for sale by owner on craigslist.  I've been studying real estate and reading/listening to BP for about a year and a half, but have yet to do an actual deal.  I wanted to run this deal by some people on the forums to get some advice from people wiser than I on this.

Here are the details on the property:

  • Located in western Maryland - old coal mining town; weak but seemingly steady economy; lots of blue collar workers
  • 8 units - 2 bedrooms in each unit
  • Each unit rents for $500-550 (one unit rents for $400...special deal for tenant with current owner)
    • 100% occupancy = $49,800 gross rentals/year (not including laundry below)
  • Comes with laundromat on first floor - 6 washers, 6 dryers; open to public; current income unknown to owner, but estimated by me at $250/mo
  • Taxes:  $2,800/year ($233/mo)
  • Owner-covered utilities:  $7,200/year ($600/mo)
  • Insurance:  $2,700/year ($225/mo)
  • About 1,000-1,500 sq ft of unfinished garage space on the first floor that is not being utilized.  Could potentially finish and rent out or rent out as garage/workshop space.
  • I plan on having a property management company manage the building.  Already identified a company and have spoken with them about terms.  They charge 10% of rents and a flat $100 for each tenant that they place (and will place new tenants for free if they are evicted or leave within the first year).
  • Asking price $150,000

I have already met with the seller to do some due diligence:  looked at schedule E tax returns, last year of utility bills, last two years of rent rolls, walked through building, looked at two of the units, etc.  It seems like this price generates an attractive rate of return, but I have some concerns about the long-term outlook and liquidity of the investment.

Some of my concerns:

  • Quality of tenants - this town is generally lower income, and the building is in a lower income area of the town (low of the low).  The building is in decent shape, but given the above factors, brings in some "rough around the edges" tenants.  Rent rolls showed a decent number of evictions (maybe 3 per year for the building)
  • Long term outlook of the local economy - the economy does not seem to be growing in the area, and from talking to some long term residents, it sounds like jobs are drying up.  There is an economic development plan in place by the local government, but I don't know how the execution of this plan will go.  May make finding tenants more difficult in future...as well as exiting the investment if need be.
  • Financing - banks seem to have a hard time with the 8-unit building, particularly with the low price.  I know some people to where I could get equity partners or potentially some private money to fund the entire purchase price, but this would obviously impact cash flow, and I want to feel good about the investment before pitching it to others (hence this post).

What do you think?  Would you pursue this deal if you were me?  The numbers seem good, but does that override my long term concerns?

All advice is appreciated!

Thanks, David

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