Found small apartment complex on craigslist is it a deal?

Question

Not ready to buy anything yet still absorbing information. Found this on craigslist and am just trying to practice analyzing deals. Can anybody give me there thoughts on this apartment deal.

https://houston.craigslist.org/reo/5452500215.html

Nick B. · Answer

Monthly expenses on a property like this are ~400/unit. If it's 5 units, you're looking at $2000/mo. If rents are $2900/mo, you have $900/mo left to pay mortgage. Pretty slim deal.

Kevin Wood · Answer

I personally wouldn't touch a property with foundation issues. It's time consuming and very expensive. May be worth starting a conversation to see if you could do a conditional sale where cost of repair is removed from the purchase price.

Additionally, down by Kemah there is some eminent domain work going on. Make sure this property isn't set to be demoed in the next 3-5 years.

Stephen Franco · Answer

The math I apply, and what seems to generate income on just about every rental I do, is as follows:

rent

- all hard costs paid by Landlord. That means taxes water sewer whatever another

- is a 10% management, 10% vacancy, 10% maintenance.

They can tell you their maintenance last year was 0 but on average I find 10% to a pretty safe

And subtract out whatever personal profit, for me at $75 per door, that I want to make sure I put in my pocket every single month without fail.

Even use a mortgage calculator app to calculate at six and a half percent 20 years and it will tell me how much of a mortgage the property can afford.

From there, I pretty much know my value.  With or without extra down payment money .

In my area of northeastern Pennsylvania...I can usually by 6 and finished property, or buy a finished property, for a tour about or sometimes even less than the mortgage value.

Meaning when all is said and done I very often don't have any money in a property and it still throwing you $75 a month per door

I have professional management and maintenance, so as a rule, overall, I don't need to get terribly involved in my rentals

Bobby Barlow · Answer

thank you for all of the replies

Nick B. · Answer

Assuming this is 5 units, $2900 combine rent means $580/mo for a unit. That's C class or worse depending on the location. Typical expenses for C class is $4500-$5000/unit year. That includes management, maintenance, turnover, taxes, insurance, etc., but does not include vacancy. I assumed $4800 which is in the middle of this range.

50% rule is more of a sanity check. You calculate actual (or projected) rents and expenses and then check if expenses are above or below 50% of rents. If expenses are below 50% something is not right (e.g., seller hides certain expenses or does not account for them)

You don't apply 50% to the rents to see what the expenses should be. Expense are what they are and do not depend on trents.

Rachel Pervis · Answer

Hi @Bobby Barlow in my opinion this property appears to be something worth fully doing the numbers on if you were ready to invest; however there are expenses that the seller didn't provide an estimate for in which you would need to ensure you include when doing your numbers (and it doesn't appear that the $500 for taxes and insurance includes these expenses) those expenses are repairs and maintenance (and I'm referring to maintenance issues that will occur while holding the property and not the $15K for the foundation, the foundation issue should be part of the reason the seller is willing to accept less than what he thinks it's worth) management, and reserves for replacement. Also don't forget to account for vacancy and collection loss. I wouldn't expect the seller to include management and reserves for replacement in his information since he is selling the property without a Realtor and may not know how much information to provide initially.  I would also want to know if the tenants were month to month or in lease agreements. Having month to month tenants can cause your income to be $2,900 one month and half of that the next month.

Bobby Barlow · Answer

Wow that sounds really high so if monthly rents total 2900 and the expenses are 2000 per month and mortgage is lets say 900/month how do you make any money? the rent seems to be about 1.6% of the purchase price. i havent been able to find anything like that in the houston area. can you elaborate on the expenses. what would make them so high? Does the 50% rule generally not apply to multifamily?

Bobby Barlow · Answer

I'm new also and am still learning and absorbing information. I am not quite ready to buy anything yet as I am waiting on and saving some money. But I thought it looked like it might be a good deal. The add says the monthly expenses are about 900 including insurance and taxes. Would 500 a month be good for maintenance and vacancy . If so that would leave about 1500 left over for p and I and cashflow. Seems pretty good to me

Bobby Barlow · Answer

it doesn't say but I believe it's 5 based on the amount of air conditioners it says it has

Nick B. · Answer

How many units? The ad doesn't specify.

Found small apartment complex on craigslist is it a deal?

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