16 unit apartment, good deal?

Question

Account Closed · Answer

You will need at least $250,000 not including closing costs at that asking price. That's the truth. And with those numbers, I would not offer more than $800,000.

Erik Hammagren · Answer

Hi @Johnny Horner, Where is this property? I am over in Corvallis and know the area fairly well. I can run through the numbers with you if you would like.

Michael Le · Answer

@Johnny Horner, you need to check if the surrounding market will support RUBS. If the other properties around that area are ABP then you might not be able to. But you said very low vacancy so there is a chance.

Reuben Rosofsky · Answer

Hi Johnny I ring a number through my spreadsheet that I use and I did not see a deal here whatsoever based on the numbers that you gave me. It's not even close unless there is something that I'm missing I would run The Other Way, it's only worth about half of what they're asking. I could share the spreadsheet would you as a PDF but I was not able to find a way of inserting it to this reply I am new to this website.

Johnny Horner · Answer

I did some investigating and found that the owner pays for water and sewer.  Property currently has one meter.  Seems like if I could implement the RUBS system that it would turn this into a decent deal.  Someone once mentioned to me there is a company that puts a flow meter on each unit, maintains flow unit, takes monthly readings, bills customer and charge owner a 6.00 monthly fee.  Anyone have experience with this?  So again the utility fee is mostly city water.  My other thought is with this I could negotiate a better price and for cheap use RUBS and increase value.  Thanks BP for any feedback.

Jesse Valencia · Answer

Johnny,

I agree with Michael, the management fee seems low as well as the CAP rate.  I am unfamiliar with the Oregon market; thus, if I was in your shoes, I would call around to property management companies and ask about pricing as well as call local brokers and ask about current CAP rates (apply cap rate to NI to come up with current value - NI/CAP rate).  Also, adjust your tax expense as the property will more than likely be re-assesed to the sale price causing that expense to increase.

Remember:  pay for what the property is worth (or less if possible); do not pay for an anticipated improvement that has not yet been made.  Any improvement in rents or decrease in expenses that you make will give you the benefit in increase value.

Good Luck,

Jesse

Michael Le · Answer

@Chris Jackson, take a look at this article by Michael Blank for some more information.

https://www.biggerpockets.com/renewsblog/2015/05/04/master-lease-acquire-commercial-real-estate-money/

Chris Jackson · Answer

Michael - could you talk a little about what a Master Lease is? I am looking at an 8plex myself, and am looking for some sort of creative way to get in since I do think have 20% down for my commercial loan.

Thanks!

Michael Le · Answer

Hi @Johnny Horner, you wouldn't include the mortgage interest in your calculations because they're not relevant to you once you get your own loan. Also, the management fee and repairs seem too low. There is no CapEx. And the utilities seem really high. Is this an all bills paid property?

Overall, the expenses are about 50% of the rents so that's about right. But at the asking price it makes it a very low cap rate. You need to talk to the local brokers in that area to see if a 5% cap rate is correct for that type of property in that area.

As to creative commercial financing, likely you will need to bring in a partner. You could also talk to the seller about seller financing or possibly a master lease option.

16 unit apartment, good deal?

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