First Apartment deal

[Account Closed]

I submitted an offer today on a commercial deal. This not the first commercial deal I have looked at, but this deal looks like it will go through.

I've done my preliminary due diligence and reviewed the numbers. The building is brick, built in 1919 and is in a downtown corridor that is undergoing significant revitalization. The building has been well maintained and has great curb appeal.

The apartment building has a nice mix of studio, 1-bdrm and 2-brm units. Located within walking distance of a passenger ferry to Seattle, shipyards which is one of the largest employers and a mid-sized college. Zoning allows for many possible commercial uses for the building. The building is a corner lot with one side facing a major through street and the other a less busy cross street.

Water, sewer and garbage paid by Landlord. Electricity is separately metered for all units and common areas. Units have electric baseboard heat. Windows are double pane and appear to be the aluminum frame type sold about 10 years ago.

Purchase Price 1.6 million

Gross Scheduled Rents less vacancy factor 280,000
Operating expenses 129,000

NOI 151,000

DCR 1.6

Next week, I will now if my offer has been accepted. Then the real due diligence will begin. I have a copy of a detailed inspection report from 2005 when the previous owner purchased the building.

[Don Konipol]

Get a new inspection report performed by a structural engineer, not a real estate inspector. I looked at a 100 year old apartment building a few years back that looked like a deal at $900,000.00, via the income approach. The already prepared inspection report was fair. However when I engaged a structural engineer, I found out the craziy high cost of repairing the many items on their last legs. I utilized my option to decline the purchase, within 2 hours the seller called me dropping his price by $300,000.00. After I declined he called again dropping it an additional $50,000.00. This continued until the price droped almost in half. Having renewed my interest, I decided to take the next step and check how easily the suggested repairs could be made. That's when I found out that the town this property was located in considered it to be of historic value and would only permit for a much more costly (but no more functional) windows, doors, and brick restoration. Recalculating the costs, the deal was no longer attractive, so I declined.
The seller again contacted me several months later wirth a new offer, not only would he sell me the property for $450,000.00 but he would also throw in the property he owned next store - a commercial property with no tenant. At this point I accepted and we signed a contract. Unfortunately, the seller was never able to deliver clear title, apparently he had gotten so many various liens against the property the payoff was significantly in excess of the purchase price!