I recently finished reading Ken McElroy’s The ABC’s of Real Estate Investing and have decided that my next investment purchase will be a commercial property specifically a 5-20 unit multifamily. Initially I considered purchasing a turnkey triplex or fourplex, however I see small apartment building as a way of reaching my goal of making over $5000.00 per month in cash flow. I understand the idea of analyzing a small apartment building however I find myself stuck on the specific numbers when analyzing and crunching the numbers. I can easily get the rent that each unit is paying however knowing the numbers for expenses is something I wouldn’t know unless I get the information from the owner. I could try to estimate and guess but I would rather have the actual numbers.
Currently, I’m prepping myself on analyzing deals around my area. I would love to get the numbers but I feel unless I have the money to purchase the property I should wait before asking an owner how much he/she pays for expenses and how much income is received from rent.
What are your thoughts fellow BPers? Should I ask anyways? Should I wait until I have the money? These small apartments are not listed on the MLS. My apologies in advance if a similar post with my question has been posted before and some of you have already posted an answer/solution to this.
You are in luck, bp has published a book about buying a small apartment complex with little money. I haven't read it yet, but it is probably what you are looking for on information. I haven't made the leap yet into apartment buildings, but when I do that will be my first read.
@Brian Ky I have read the book but I'm not sure if I should approach an owner about the information I need to analyze their property or wait until I have the money assessable.
I work for a private equity firm that purchases larger apartment communities and have underwritten over a hundred deals. I have not underwritten anything with less than 200 units, but I assume brokers for smaller deals market properties in a similar fashion. It is standard practice to provide T-12 financials for a property that you are selling. You should feel very comfortable requesting financials from the broker or seller directly.
I would also set up a meeting with a property management company that deals with that size of asset in your area. They should give you a pretty good idea of what your expenses will look like in your market. You may be able to operate the property with lower expenses, but their historic expenses are usually your best place to start. Best of luck finding your first commercial deal!
Agree with Holden; you should not hesitate to contact agent / seller to get whatever financials they can / will provide. Just remember to take everything presented with a pinch of salt. You will base your offer on the information but will not be able to verify everything until you are in DD. Also, always check for what they are leaving out. I recently reviewed some financials for 4 properties being sold. Not only did the seller leave out the property taxes, they also did not include any management or property insurance.
Regardless of if you use the BP spreadsheets or build your own, make sure that all the boxes are filled in or you understand how they are combined (e.g. Landscaping and Snowplowing may be one line or two).
Also, reaching out to the agents, aside getting you on their marketing list it will also allow you to start building relationships with them. You never know when the right deal will come along.
Speaking of deals, the agents should / will start sending you offering memorandums / marketing material that should / will contain most of what you need. It will help you keep up with what is going on with the market.
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