Wondering if I am doing the right thing?

11 Replies

I am looking at purchasing a 8unit apartment in Olde Towne Portsmouth, VA, which is in a flood zone... Wondering if I am doing the right thing in purchasing this.

The economy has several anchor points, the military, a naval hospital within walking distance, ship yards, ports, tourism "Virginia beach".

These are the financials.

$74,100 current rental income.

$1,800 Laundry (old top load COIN (0.75c) washer/dryer, I believe this can be improved, with new card machines)

Expenses

Bldg Insurance        2976

Flood Insurance      2690 (hoping this doesn't increase...)

RE Tax                    6297

Electricity                720 (decrease through more efficient lights/washer/dryer)

Natural Gas            1200 (2 tankless water heaters, decrease through showerhead)

Water/Sewage/Trash  4380 (don't know exactly how much for water, though trash is $33/unit, hoping to add water saving aerotors/showerhead/toilet to all units, maybe submetering)

Lawn Care               540   (Will eliminate this due to me living on site)

 

7% - Vacancy               5187 (little turn over)

7% - Management        4824

6% - Maintenance        4446

Actual Income $75,900

Expenses        $33,260

Net Income      $42,640

P&I                   $29,568

P&I 2nd              $9,278

End Cash Flow $3,794

75% loan 5.25% fixed/amortized 5/25

Seller financing 40k 6% over 5years 

So my question is, will this deal work? It is positive in cash flow, but will Flood insurance make this not work, or even mean financial ruin? The city is trying to prevent flooding of olde towne, but not doing a very good job at it... The Base Flood Elevation is 7.6 Feet. The mechanicals are off the ground by 22inches, the lowest elevation of finished ground is 3.8 feet. So if there is a high flood, then the mechanicals will be damaged.

The good thing, is the "Top of the next floor" is 8.2 feet, or the first floor.

What are your thoughts? Also for trash, does anyone know if it is possible as a commercial apartment building to get rid of city trash and go to waste management?

$40/unit/month cash flow seems really low to justify IMO.

How much are you paying? How much cash are you putting in?

how old is the building?  6 % for maintenance is awfully low. 

Mark Ferguson, Real Estate Agent in CO (#IA40029358)

I agree that $40 a month per unit seems really low and not worth the risk.  Also flood insurance (for a single family residence) runs about $100 a month, which is why I won't buy properties in flood zones.  I suspect your flood insurance rates will increase - especially if there is a flood.   

If you are living in one unit do your numbers account for that?  I agree with Mark the 6% is low as most of the buildings in the Southside are older.  

The numbers do not account for me living on site, but I would deposit the money into the account.

The building is from 1910's, and putting down 133k.

Is the economy strong enough to withstand the shock of diminished military spending, which can happen with a stroke of the President's pen...?  Answer this, and then move onto the facts that exist with flood zones :)

thank you all for your responses and private messages, the deal feel through.

Norfolk/Portsmouth area has one of the largest ports/shipyards. Would the military being cut hurt, yes, but not a one party town like Detroit is.

thank you all for your replies, the deal fell through. Was misled in regards to the actual financials.

@Paul Kuhn  

The key is to know the area when it comes to military cuts. The fact is some paces are "condensible" and replaceable. Many are not. My husband is active duty navy. We invest in MANY small towns. The key is to understand the area and the potential of the closing. We invest in Virginia Beach and hope to buy a vacation rental if we come back next tour!

There is a lot flawed w/ the reasoning.  The maintenance and vacancy numbers are just wrong for there.  Va Bch has nothing to do w/ Old Towne.  And as I mentioned previously, everything floods in that area, all of the time.  Even if those numbers were good, it wouldn't be something worth getting, not to mention the water damage and crime-  Where did you get the first rental over there?

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