Renovated Apartment Building with 28 Units (Radcliff KY)

17 Replies

Renovated Apartment Building with 28 Units (Radcliff KY)

I just ran across this doing my daily Craigslist searches. I don't work in this area or know anything about the area. Just thought I would pass the info along. 

This should be a great conversation!

$500,000 property

Advertised as producing $150,000 yearly income.

I actually called on this property a few months ago and spoke to the property manager/owner.  She took the property over a few years ago as a foreclosure I believe.  Apparently it was in pretty bad shape, because as of a couple of months ago, only 6 units were actually "rent ready".  She said the potential was there to produce 150K/Year, but will take several thousand per unit to get back in operating shape.

It might be a deal for someone, but I walked on it.  The ad was a little misleading, as you are to believe it is currently a producing property, when in fact it is not.

Or should I say, at the time, the CL ad suggested it was a current producing property, the latest ad does say "potential"

@Bryan Gay

 Good info. It caught my eye but is a little out of the areas I like. Maybe someone can get a deal on it. 

@Bryan Gay

 Did you get any estimate of what the rehab costs would be to bring the building up to date and the units to rentable standards?

@Jason James

 How would you characterize the neighborhood? B/C/D? How is local employment and crime?

The parking lot is tired, and its ugly as sin.

OTOH if you know what your doing and have access to some hard money you can buy it, drop a couple hundred thousand into it, and refinance it. Maybe making a nice profit. IDK though the area would have to support it. 

Will the local area support $500 a month per unit? What's the competition look like?

Unless anybody has any concerns of me doing this, or it is against a rule of some sort, i'll post the back and forth email I had with the owner.  As a newbie, It seemed over my head so that I didn't pursue it further, but maybe you pro's can give me some feedback on some of my questions that I asked regarding the property, and how you would potentially go forward with the information that she provided.

Maybe this could be a great "what if" scenario that us newer investors can see how you old pro's would handle it.  Good idea?

Anytime a building of this size comes on the market it generally peeks my interest. We have a small investment firm in Southeast Kentucky, and we are looking to possibly move into your region. I have a few initial questions If you have a moment to clarify for me:

Why is the building currently vacant?

The property was purchased in September 2013 as a distressed foreclosure property. I have invested a substantial amount of money in renovating it to it’s current level but it needs additional funding to complete the building to achieve 100% occupancy. Filling the property with tenants was not a priority for me in the past. I started advertising for tenants only 2 weeks ago and I have had a tremendous amount of interest (which can be proven with emails and phone log) as the property has high visibility from the road. I will be receiving my first completed application forms tomorrow.

I see in the listing that you have renovated a few units, will all 28 need to be renovated in order to meet your revenue projections?

In short, YES. As of today, I have 2 fully renovated deluxe apartments completed (cost $5,000), 1 standard apartment renovated/completed (cost $1,500) and 1 x 3 bedroom apartment that is 90% completed which I live in. Three are ready to be rented today. It would cost very little to complete an additional 6 units.

Would we be able to see the Rent rolls and a profit and loss statement for the past 2-3 years?

At the time of purchase I was given a rent roll for one month which I learned after closing it was totally fabricated. I have no other information about past performance.

Are there any deferred capital expenses, such as a new roof or HVAC looming on the horizon?

Each apartment has a gas furnace which was fully serviced after purchase. In one building 12 units work fine, 1 unit needs a couple of hundred dollars to repair and one is toast. In the other building only some of the furnaces work but I can’t remember the exact number (maybe 6?) as I had it written down and now can’t find the paperwork. I can tell you, you are looking at $2,000 per unit to replace although I have a contact that can sell them to me at wholesale for $1,000 per unit. You would not need to worry about replacing the furnaces until you have tenants moving in over winter. And, if you didn’t have the money you could buy them a couple of heaters to get through the first winter.

The metal roof appears newer and in good shape.

No HVAC.

Water heaters are in good shape.

The building is structurally sound.

No termites at time of purchase.

The carpet was in such bad shape I only saved 6 units and the Carpet Cleaner assures me the carpet will come back to life. Four basement units need ceramic tile; not carpet.

New carpet with under pad in bedroom and spare room/closet costs $250.00 in materials.

When the previous owner realized he was going to lose the building he decided to remove every single stove, fridge, laundry machines and vending machine.

Currently I have 9 brand new sets of stainless steel appliances that are conveying with the property (only set used has been in my apartment).

9 units have been fully demo’d, prepped and cleaned ready for a deluxe renovation.

I have worked closely with the Building Inspector and he’s totally cool to deal with. No building permits are required to complete the renovation as there is nothing structural.

I saw a previous ad on CL for this building that estimated $120,000 in annual revenue. But this listing is showing $150,000. That is a pretty big swing, any reason for the change?

Here is how I came up with the numbers –

Income

12 units x $400.00pm = $4,800.00 = $57,600

12 units x $500.00pm - $6,000.00 = $72,000

1 unit x $350.00pm $350.00 = $ 4,200

3 bdrm x $850.00pm- $ 2,550.00 = $30,600

Total Projected Gross Income $164,400

Expenses

Trash @ $50.00pm $ 600 (eventually $100pm for a big dumpster)

Real Estate Taxes 2014 $ 2,581 (in 2013 the property was assessed at $550,000. I worked with the Tax Assessor who agreed to halve the taxes for 2014 – huge savings)

Insurance $800pm $ 9,200

Total Expenses $12,381

Estimate $164,400 - $12,381 = $152,000py

Growth is coming to Radcliff with a $40 million dollar VA Hospital being built as I write this within a couple of miles of the property. This will bring 180 to 200 new, full time, stable jobs to the immediate area thereby increasing the population by 1 to 2%.

If you don’t mind doing a little renovation work now to this property you will end up with a total cash cow for many years to come. If you only want to hold onto it long enough to have it at 100% occupancy there is a tremendous flipping opportunity. Based on my research Ibelieve you could sell it for around $1.2 million.

My Questions are in Bold, the non bold is her response

Bryan,

Are from this area? I am about 1.5 hours away. I will be swinging through the area in about a week I may take a look. Do you know the area?

This post has been removed.

No, I am also about 1.5- 2 hours away.  I am in the London/Corbin area, so this particular property would have been a reach for me as well.  The extent of my knowledge about the area is what I received from the property owner.

@Bryan Gay Great info. If nothing else the convo gives others some insight. 

The expenses provided by the owner are a joke, I'd redo those and assume between 40% and 50% of gross rents (so in this case, NOI would be 82K-98K). Not sure who this person is getting to do their work, but I'd assume at least $10-15K per unit plus another $50-100K on exterior and common areas (this would be a pretty basic reno and not really what I'd want to do if I were holding the property long term). So you've got at least $425K in rehab costs (and likely closer to $600K) and an NOI of maybe around $80K. Back of the envelope suggests you'd be all-in for at least $925K and receiving around $80-98K in net income. An 8-10% CAP rate in a small city for a total rehab seems like an absolutely terrible deal to me...if somebody goes by the building you should post some photos and an address to help add to the discussion.

Medium logoMichael Seeker MBA, Renting502 | http://www.Renting502.com | Podcast Guest on Show #94

Ask to see their actual financials. Their estimates on expenses are way off.