Expected IRR on smaller MF value add

[Adam M.]

Curious as to what IRR you look for in a value add MF. I spent an hour or so building a model with some guestimates. Kinda curious how far off I would be. With no rehab I estimated the IRR to be 12% and w/ rehab 22%.

Here is the model

https://www.dropbox.com/s/t3x56gkrs2glzgl/905-907-...

Property in question

http://www.loopnet.com/Listing/20414371/905-907-W-...

[Joel Owens]

29% expenses in your model for 2 buildings built in the 1920's is not realistic. If landlord pays water would use about 55 to 60% expenses annually and if not about 50%.

Property taxes may go up based on the purchase price after closing and also the property insurance likely is higher. Sometimes the sellers show really low insurance in numbers but they have a lot of properties insured versus a single property owner policy.

These are all 1 beds which i generally do not like unless next to a college for student housing or a bunch of older people live there. It appears multiple levels so would need an elevator versus the stairs. If no elevator then the unit rent range likely varies by floor. Need to look at crime surrounding the buildings and who the other owners are. If you have the nicest buildings on the block and high crime then marginal tenants might be all you can attract to live there. Check for the tenant loyalty factor which is what percentage of the building has been there over 2 to 3 years and what is their pay history? If owner recently slammed tenants in and is making wild number assumptions to sell then might be best to walk away. If they are claiming low 20's for expenses then typically they cut corners somewhere instead of properly maintaining the asset and major deferred maintenance exists. Make sure all the units are properly permitted. Appears to have windows air units and a flat roof which can have other issues.