Apartment Purchase Questions

5 Replies

Hey BP, I'm evaluating (2) 4 unit buildings on the same property that are 100% occupied and have been for 2 years. Revenue is $3900/mth. Expenses (Cap X, Mortgage, PM, Maintenance, Taxes, Insurance) = $3000/mth. There is a finished basement in one of the buildings that's currently being used for storage and a beauty/barber shop in the building. Owner Financing. I would like some feedback on if the deal is attractive. Thanks

Mac:

I'm not clear if you are looking at two quads or one 8 unit apartment.  They are valued differently.  Quads use Comparative Market Analysis and apartments are based on Net Operating Income.   

To really evaluate the deal for either method, we also need purchase price and terms.

Owner financing can be really sweet.  If they financed 100% of the purchase price, for example, you would be crazy not to take the free $900/month.

Good luck

Thanks for the response Scott. the purchase price is $200k. We haven't worked out the full terms on financing yet. Each building has 4 units, so it's 2 Quads.

Thanks Mac.

So, let's just assume they want 20% down.  (You may be able to go lower which would boost your returns.)

Cash out of pocket is $200Kx25% = $40K

Yearly Cash Flow is $900x12 = $10,800

Cash on Cash return is $10,800/$40,000 or 27%

If your numbers are right, I don't care about property valuation, that is a pretty good CoC return. In four years you've gotten back all your money and still own the asset. No brainer.

That's how I was viewing it also. The monthly cas flow at the end is the ultimate goal. Thanks again.

Sounds like this property is probably in a D area or is in bad shape. Make sure you’re considering the likely low rent growth, substantial vacancy and collection loss, and other issues that could arise. Make sure that your risk tolerance is in line with the risks associated with this property. If it is your first property, you may want to avoid the headaches associated with a D area property.

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