825k a year investment- what should I look out for?

10 Replies

Here are the numbers 44 Unit multi-family for sale $12,618,052 Gross Rent Roll - $ 918,000 Total Expenses - $92,950 Net Operating Income - $ 825,050 I think this is a great investment, on a large scale. However, I would like to see what I can’t see. Would some of you seasoned investors chime in to tell me what are some of the important things to look out for before making a big purchase like this? Thank you for your time.

Look at the existing leases.  It may be leased right now but if lets say 10 leases expire in a month or 2, then you are put into a situation where you will have to re-lease or potentially find new tenants.  Additionally I would be careful of the condition of the property.  Make sure doing your DD that you get a inspection.  Don't want the property to look nice but if some major repairs are just hanging on and the cost will pass along to you. That is a major expense to watch out for.  Last I would be check on if there is a lot of delinquent payments.  Meaning, is it going to be a pain just to get rent and paid by the tenants.  

Just a few tips I really look at.  there are a lot more but that is just scratching the surface.

Your total expenses seem extremely low.

I agree with Michael. Total expenses seem really low for that kind of property.

Like Michael posted, expenses seems very low. Without more details it hard to say. 

Thank you for your advise.

I will check the current leases.
I will find more information on the total esperando why they are extremely low for this level property.

I will definitely follow up and circle back to you all!

@Katie Johnson For a $12.6M pricetag, I doubt that $92K even covers the annual tax bill.  Even if those expenses were true (they're not), $825,050 / $12,618,052 = 6.5% Cap rate.  This investment almost certainly makes no money, and more than likely loses money every month.  You should talk to a commercial broker in your area if you're looking into these types of properties... It seems like you're in an area where people buy for appreciation rather than cashflow.  Or this is just a seller with a dream to sell their property for top dollar but in reality its worth much less.  

@Katie Johnson As others have said, there’s a 0% chance that the expense number is accurate. Now is it $92K for the break/fix maintenance expense? That would make sense. Then you have to add it insurance, property taxes, a management fee, utilities, etc. and come up with some figure for cap-ex holdback.

vacancy rate, conditions, crime rate ..... location, location?

Here is the link to the properties
Turns out there are 4 bldgs
They have “net leases” 5 yrs and 10 years, etc

Waiting for listing agent to get back to me.

So is loopnet not so good when it comes to looking for deals like this?


Katie, it's not exactly Loopnet that's the problem, but that sellers and their agents inflate/exaggerate the numbers probably 80% of the time. Sometimes it's obvious, like it sounds like this one is, and other times it's much more covert and won't be discovered until you really dig into your due diligence.

I had one that came on market, numbers were great and seemed right so I got it under contract without doing a full walk-through. I did my walk through and during that we asked a tenant what their rent was. It was like $100/mo less than the seller said. Long story short each unit of the 8 plex had rents over-estimated like $100/mo. In reality I think the numbers got mixed up with another 8 plex he owned in the same town, but either way, stuff like that happens all the time. 

Looking at yours, it looks like there is some sort of tax abatement making the taxes almost non-existent now, but will likely come back up at some point.

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