I'm on the process of buying a six unit apartment in Addison il dupage county
Sales price is 450k 5 2 units and 1 1 unit
Rents in the area are 850 for 2 beds and 750 for one bed. Building noi is around 35k
Whoops you guys say I'm making a good investment or I could put my twenty percent to work better around my area?
Any feedback is great
I am not a big fan of 6,8,10 units etc.
You can't get good commercial financing because it's too small. Might as well get 2 quads and put long term 30 year debt on them.
When commercial properties and loans makes sense at least to me is larger scale where you are not buying yourself a job.
thanks Joel how much down usually quads need? 25?
25% down is probably a good guess for a 4-plex although that will depend on the specific bank and you may find one that goes lower. Also, if you owner-occupy, then the terms will be more favorable.
What Joel refers to is the breakpoint between "residential" and "commercial" loans. A 4-plex is considered residential for lending purposes, but anything larger (e.g your 6-plex) is considered commercial. Commercial terms are generally less favorable. Larger downpayment, higher interest rates and shorter terms (no commercial 30-year loans - typically 5-10y is longest).
thanks for info Andrew
Does anyone have an opinion on this deal above that I'm closing?
Mark you have not provided enough info.
I would focus on the rents the property is generating and not for the area. Your units could be in much rougher shape then the ones at a possible higher rent or they offer amenities yours does not have.
Let's do a basic here.
850 X 5 = 4,250 gross per month, 1 bed you are saying 750 but the 1 bed might be overinflated as a 2 bed usually has more value than 100 more a month so 750.
4,250 + 750 = 5,000 monthly X 12 = 60,000 gross expected income a year.
If landlord pays utility use 60% costs for eviction, PM, repairs, etc..
60,000 X .40 = 24,000 NOI
This is if the property does not need immediate repairs and if that's the case you lower the offer price.
24,000 NOI / 450,000 = 5 cap
Not even close to being a deal. You will probably respond back with the sellers says expenses are less and profit is more etc. ,etc.
I have heard it thousands of times. Never believe what a seller is selling. Do your own research and trust the numbers you can validate.
I ran this quick formula off of the limited data you provided. If rents are lower it is even worse.
thanks Joel not what I wanted to hear but I appreciate it a lot!
Remember you will hear all kinds of arguments from the seller. They will say they just redid this and that etc. and expenses are only 35%.
They say this to justify a higher number.
What they aren't saying that if your time horizon as the buyer is a 10 year hold before selling then costs might look like this.
Year 1- 35%, 2 - 38%, 3- 43%, 4- 47%, 5- 50%, 6 - 53% etc.
35% is unrealistic but the point is over the 10 year spread your average expenses will be much higher than what the seller is quoting plus they want you to pay a low expense price today. You will end up overpaying and might cash flow a little then in the future years the repairs really start rolling in and you have a loser of a property. Where is the seller?? Sitting on the beach telling friends about how they dropped one on a buyer for a great price.
Don't be the investor that overpays and becomes another statistic. I would rather not buy at all than deploy my capital into a marginal or bad deal.
Originally posted by @Joel Owens:
24,000 NOI / 450,000 = 5 cap
Not even close to being a deal.
Comparable properties are selling at a 3% cap, $24,000 NOI / 3% = $800,000 so you could flip for a quick $350,000 PROFIT!! I'd like to see a better deal than that!
Not to deviate from the main topic but How do you find buildings like that? They're almost never on the MLS (at least in New England). I am not as connected to get them directly from sellers. Any strategy recommended from someone who just moved into a town and looking to buy an apt building?
@Georges Arnaout get off BP and hit the streets. Today I found a deal at FW Webb in Salem, at Depot a 5 unit going on the MLS tomorrow on Rantool Street in Beverly and a strip mall in Marblehead. Let everyone know what you're looking for!
@Mark Malevskis hey man you lucked out with Joel's analysis!
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