Is This a Good Deal?

Question

I know this isn't a great deal but curious everyone's thoughts on how far away this would be from being a good deal?

- Broker pocket listing

- 20 1BR apts 678 sqft/each in 3 buildings

- C area close to downtown but not in path of downtown rejuvenation in a growing city of 200k+

- B class brick buildings, built in 1983 and well taken care of

- NOI $81k

- near 100% occupancy

- near market rents

- they are asking $850k (9.4% CAP)

- full asking price CoC return would be 14%, $106/door cash flow

No real glaring value add opportunities, curious from the experts at what price this is a deal? Thanks a bunch!

Kathy Utiss · Answer

I agree with Eric. People use this method not knowing how to break it down. Tell me what you want here's what I consider a good way to see if a property is worth going forward on

850,000/360=$2361 PRIN

850,000X.05=$3,541 Interest

$6,750 Net Pymt not including insurance, repairs, or maintenance at $81,000 a year it's $845x12=$10,140.

Granted you may get a better interest rate. However, even with a better interest rate there's next to nothing left! I'm just curious are you sure those are the right numbers? 20x$700 makes $168,000 gross a year before deductions. I know some places have low rent prices depending on where the property is located but less than $700 usually isn't found in todays rental world.

Eric James · Answer

Personally, what I look for it an opportunity to value add. It doesn't look like you could do that here.

B.J. Simpson · Answer

Eric and Kathy, I was thinking along the same lines regarding wanting value add.  Rents are pretty close to market, but it feels as though market rents are oddly low in this growing (borderline booming) market and just read an article from the local news station about the "unusual apartment shortage" in the city.  I looked at a D property, D neighborhood in same city and they were getting $700 (utilities paid) for new leases on 1BR 500 sqft apts that were much older and in worse condition.  That could be the value add here? Several long term tenants still at $495 in this complex.  HUD for 1BR is over $700.  Where does value add cross with speculation?