BiggerPockets

On a 60 unit building expenses are pretty much guaranteed to be at least 50%, no matter what the selling agent and previous owner tell you. You want to be looking for evidence they're actually higher. If you're saying total of 50% for actual expenses plus vacancy, then you're in the right ball park.

How much are the scheduled rents?

What are they claiming for NOI? Is that the $330,000 you state for gross income? If so, this would be a screaming deal. Even if the $330,000 is gross scheduled rent, and the NOI is then $165,000, this still looks like a good deal.

If NOI is $165,000, take them up on that price, and make them prove the expenses. If they prove to be higher (tax returns), then reduce your price correspondingly.

Just my very quick and very dirty analysis. No time right now for a more detailed look.

Jon

You are correct... not in California. I'd love to invest locally, but it's too rich for my blood this early in my REI career. I own, excuse me; the bank owns, a primary residence here in TO, but that's all I can do locally.

Here are the full numbers...

Income
Gross Potential Income 324,000
Other Income 6,000
Total Gross Potential 330,000
Less Vacancy @ 10% 33,000
Effective Gross Income 297,000

Expenses
Maintenance 30,000
Management 14,850
Taxes 15,240
Insurance 18,000
Utilities (Water & Sewer) 21,600
Reserves 12,000
Administrative/ Misc 6,000
Total Expenses 117,690

Net Operating Income 179,310

Less Debt Service 87,540
80% LTV 30 yr amort 6.75% interest

Less CapEx @ $200 / unit / year 12,000

Cash Flow 79,770

My last loan was 7.375%, but that was using a standard mortgage that I quitclaimed to my LLC.

This will likely require a commercial loan. I'm thinking hard money to buy it using $0 down and cover the rehab cost, then refi into a mortage once complete.

I'm going to see if I can pull this off...

Hmmm... time to see if I can line up some financing...

Are you accounting for the fact that your vacancy will probably be 100% during the remodeling period. 10% might be the stabilized vacancy rate.

Jason,
I deal in Indiana and often see numbers like that. " Potential" rent is very seductive - especially when the realtor presents it. In a market that runs these kinds of rent numbers - half a million in rennovations is a heck of a project. Are these seperate buildings where you could get one building done, get it rented, get the next building done, get it rented, etc...? See where I'm going with this? Half a million rennovation across 60 units and you could be looking at 6 months to a year vacancy waiting for this thing to get done.

Also - who did the estimate for the rennovations? A contractor? The realtor?

In this market - you as the buyer pull the strings. If this kind of rennovation is on the market at these numbers - my guess is there's something at just a little bit higher per unit cost that needs much less work and will be a cheaper per unit price in the end...... That's just a guess though.

East coast! Man that's a trip.... Yeah you'd have to be there to control the construction costs as well as you'd have to visit occasionally to check on the status of the property. This whole " get a management company and sit in your easy chair" approach to management is a load of crap sold by REI educators. If you're not managing the property - you're managing your management company. Why not look in Arizona outside of Phoenix and Texas? I'm sure you can find deals like that in some of the more rural parts of those two states and you'd be a heck of a lot closer.