How do you value a 60 unit apart. complex when it's 20% occupied?

Question

How do you value a 60 unit apartment, when after clearing everyone out 1 year ago and starting over fixing units up and renting them out for $500/month.  Right now there are 15 tenants, with 4 units available.

Ray Johnson · Answer

@David Turnage Class D properties are considered a specialty Real Estate Class, If you do not currently work in the D-Class arena, You'll want to make sure you partner with someone that has experience in this sector. A lot of people think they can take on this tenant class not knowing that standard REI principles and practices do not apply to the D-Class arena.

Did you ask him where he got the 1MM number?

At $500 a month rents before expenses in the D-Class space, combined with Owner Financing, and the need to rehab 41 of the 60 Units, and being in a small town of less than 1,600 people, the only thing good that will come out of this deal is that you'll rehab his remaining 41 units for him then somewhere along the line realize you'll never make any money on this deal.

Bill F. · Answer

@David Turnage This seems like a massive turn around project. We have no way of knowing if $1m is high or low without more details.

Who ever buys this needs to have A LOT of capital to make this  success. Almost no bank will lend on it, so the buyer needs to purchase in cash or have the seller carry. On top of that the funds needed for the repairs and operational expense will not be insignificant.

Do you have prior multi family experience?

David Turnage · Answer

Class D in a small  town of less than 1,600 people. I have not asked a contractor. I'm thinking the area population can't support this deal in the time frame I'm looking at.

David Turnage · Answer

Very little, we own 45 total houses that we rent, 2 4-plexes, a 3, 5, and 6 mobile home park, and the rest single family.  We do all the property management ourselves, but wanted to "go to the next level" with an apartment.  The seller will finance, but asking price is too much for its current condition.  I don't know how long rehab would take nor the cost of it.  I was hoping to offer a lower price due to current condition and slowly raise the payment back as we get more tenants.  Your thoughts are greatly appreciated.

David Turnage · Answer

The 80 yr old owner had a bad property manager on site, he cleaned every tenant out and started over with 15 new tenants, with only 4 available units, and slowly working on the rest.  Its for sale now, with owner financing, but he was asking over 1M. I have not personally looked at each vacant apartment to see the estimated cost to rehab. He has some 1/1, 2/1, and 3/1 units that avg $550/month.

Bill F. · Answer

@David Turnage Some more background would help.

Did you buy the apartments, clean house, and have 15 renters in there?

How many units are rent ready, only the four?

How much capital is needed to get the other 40 odd units to market?

At first blush I'd say a NPV calculation combined with some sort of comps to get a price/unit is a good starting point.

How do you value a 60 unit apart. complex when it's 20% occupied?

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