Evaluate this Multifamily Deal

3 Replies

I just got an accepted offer on a first deal.  It is a 10 unit apartment complex (8x1BR/1BA 2x 2BR/1BA) and a Duplex (3BR/1BA and 1BR/1BA).  Below is the spreadsheet analysis.  Would appreciate any comments on the deal!  I am financing with equity in another property so it is essentially 100% financing.  I am not yet sure the terms of financing at this point, but likely fixed for 5 years around 5% then variable.


Prepared By     Key Investment Criteria
Client Name     Max Offer  $       425,000  
Property Address     Down Payment  $                 -   
Number of Units 12   Cash Flow (Per 100K) $88.30  
List Price  $     425,000 % of List Price   Cash Flow (Monthly)  $         375.29  
Offer Price  $     425,000 100%   Total Cash In  $    10,000.00  
ARV/Appraised Value  $     450,000   Debt Service CR 1.16 Pref >1.2
Discount (%,$) 0%  $                 -     Debt Yield Ratio 7.65% Pref >10%
Purchase Price (Max Offer Price)  $     425,000     Cap Rate 7.47% Pref >8%
Percent Down 0%     LTV 1.00 Pref <.75
Down Payment Amount  $               -      Rent/Price Ratio 1.35% Pref 1.25%
Amount Financed  $     425,000     COC ROI Year 1 218.0%  
Interest Rate 5.20%     (Exp+Int)/Income 84%  
Costs of Repairs  $         5,000     Gross Rent Multiplier 6.3 Pref <9
Closing Costs  $         5,000     COC Return 45.0% Pref >10%
Total Cost  $     435,000     Break Even Ratio 93% Pref <85%
Length of Mortgage (Years) 30     Expense Ratio 53% ~50%
Payment Monthly Annual   ARV-Total Cost  $         15,000  
Monthly Mortgage Payment $2,333.72  $      28,004.65   % Investment of ARV 96% Pref <75%
    10 year Return 65% $284,164
Rental Income Monthly Annual   15 Year Return 113% $490,037
Unit A (10 unit Apt)  $    4,550.00  $      54,600.00   20 Year Return 172% $748,269
Unit B (Duplex)  $    1,250.00  $      15,000.00      
Unit C  $               -   $                  -    DSCR greater than 1.45 1.16
Unit D  $               -   $                  -    Standardized Cashflow >180 $88.30
Gross Rental Income  $    5,800.00  $      69,600.00   LTV less than .76 1.00
Vacancy Rate 8%     ROI year 1 greater than 20% 218.0%
Net Rental Income  $    5,336.00  $      64,032.00   Expense ratio between 45 and 55% 53%
    Positive initial equity  $     15,000
Expenses Monthly  Annual   15 year return greater than 115% 113%
Property Management Fees  $           320.16  $       3,841.92 6.0% Total Cash In Less than 50K  $     10,000
Leasing Costs  $                  -    $                  -  0% DYR greater than 9%   7.65%
Maintenance Reserve  $           750.00  $       9,000.00        
Utilities  $           375.00  $            4,500        
PropertyTaxes   $           640.17  $       7,682.00    
Insurance  $           325.00  $       3,900.00      
Other (Snow, Lawn Care, Trash, etc)  $           216.67  $       2,600.00    
Total Expenses  $    2,626.99  $      31,523.92      
       
Net Operating Income  $    2,709.01  $      32,508.08        
         
Mortgage Payment  $    2,333.72  $      28,004.65        
Total Cash In (Downpayment + Repairs)   $   10,000.00          
Net Cash Flow  $       375.29  $       4,503.43        
         
Investment Analysis        
Appreciation Rate (20 YR AVG = 4.4%) 2.5%          
Rent Appreciation (20 YR AVG = 3.1%) 2.5%        
Cost to Sell Property 0.0%        

I would force appreciation if are able to add value, raise rents, decrease expenses and refinance asap to pull the free money out. By not putting 20-25% down it is causing you to run extremely tight margins, which in turn could put you in the red when faced with a multiple unit issue.

Well initially doesn't look too bad be careful often the numbers are not correctly reported do your due diligence! I add a 10% repair in every month.Utilities look low for amount of units also lawn and garbage and pest control could be more I'm in maine I pay heat......It's better to be conservative also for my banker I have to have 1.25 dept to loan ratio

I would be MERCILESS about using the following metrics:

20% for repairs and capex 

8% minimum for vacancy and related costs (evictions, etc.)

10% for management even if you manage yourself. There's great benefit to understanding the difference between the money you're making on your money and the money you're making by managing. 

If it still gives you your desired COC / ROE numbers after plugging these in, fantastic. Otherwise I'd pass.

Also, I see you're assuming 2.5% to 4.4% appreciation annually. That's probably going to happen over that long a period (20 years), but there's another place you can be conservative, maybe use a hard 1.5%, same with rent appreciation. I believe these numbers are JUST conservative enough that they won't "talk you out of a good deal" but will protect you from over optimism as well.