38 Unit Purchase. $105k cash flow. Good deal?

Lewiston, Maine
Multi-Family and Apartment Investing
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38 Unit Purchase. $105k cash flow. Good deal?

Andrew Michaud
Bangor, ME · Member since 2017 · 72 posts · 19 votes

I am looking at purchasing a 38 unit apartment complex in Maine. Our area is a bit cheaper market than other places in the US. The property is in an excellent location. Right in town and walking distance to hospitals, schools, municipalities. Buildings are also in excellent shape, very well maintained, but all will need roof replacements.

Here are the metrics of the property.

Asking Price $1,330,000 ($35k/unit)

Total Income - $319,500

Taxes - $31,260

Insurance - $14,760

Maintainece - $12,000

Electricity - $20,032

Heat - $22,956

Trash - $2,400

Lawn - $7,200

Snow - $12,000

Water/Sewer - $1,416

Management - Self

Total Expenses - $126,528

Net Income - $192,972

Debt Services - $89,640 with 20% Down, 5.75% Interest, 15YR/20 Amortized 

Total Cash Flow - $103,000

DSCR - 2.51

Is this a good purchase?

Also, I am purchasing for 35,000 per unit, but Estimate appraisal will come closer to $43,000/unit.

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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
4y

Yes it looks like it can make money. However if those are numbers from the seller or listing you need to get your own. Property taxes, insurance and other expenses-vacancy, delinquency etc. Use Estoppel certs to verify rent payment and deposits. Security deposits and advance rent are your money to be paid on closing. Walk every unit and get a professional inspection. Keep us posted!

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    4y

    Yes it looks like it can make money. However if those are numbers from the seller or listing you need to get your own. Property taxes, insurance and other expenses-vacancy, delinquency etc. Use Estoppel certs to verify rent payment and deposits. Security deposits and advance rent are your money to be paid on closing. Walk every unit and get a professional inspection. Keep us posted!

    4Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y

    If the vacancy rate is reasonable, this may be a good one.  If the property is worth $10k more per unit, worst case is you simply flip it for a $380k profit (minus selling costs and taxes).

    Maintenance is too low...need to 2-3x that figure (which will include unit turns).

    Include a vacancy amount in net income and cash flow...and include cap ex reserves in cash flow...and property management fees even if self managing (may have to use 3rd party management at some point and, even if not, you need to get 'paid' for self management, which is different than investment income).

    Ensure that the area is fine.  $700 per month rent in some areas can be quiet and stable and a war zone in other areas.

    4Reply
  • Hardik Patel
    Southern California · Member since 2015 · 67 posts · 23 votes
    4y

    looks like a great deal in today's market... how were you able to find it? 

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Andrew Michaud

    Definitely check the expenses as heat and electric look low for maine - especially if it’s off of oil which also your price may have doubled in past year.

    As mentioned get estoppels from tenants if paying

    Have you inspected interior of units as well?

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  • Paul Smythe
    Investor · Greenville, SC · Member since 2012 · 269 posts · 187 votes
    4y

    Seems too good to be true, and if it isn't I need to start investing in Maine. A 14% cap rate is ridiculous. That's a deal in my market with all the numbers the same but double the price.

    I can't help but wonder what the catch is, whether it's bad location, terrible condition, or maybe the numbers you're looking at are pro-forma instead of actuals.

    0Reply
  • Will Stewart
    Investor · MA · Member since 2014 · 164 posts · 114 votes
    4y

    @Andrew Michaud is it in Lewiston? I don’t know the market super well but I’d get it under contract and then talk around to property managers in the area… if it’s 38 one bedroom or studio units with no parking, you might have trouble getting a PM, for example. 

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    @Andrew Michaud where are the numbers coming from - proforma or tax returns?

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  • Brandon VukelichBusiness Member
    Real Estate Broker · Tacoma, WA: 🏢 27 LTRs 🏡 3 STRs · Member since 2018 · 544 posts · 455 votes
    4y

    Already a lot of good feedback here.  Red flags for me that stand out on the financials are water, sewer, trash and maintenance.  W/S/T $3800/year?  Are the tenants being billed back a portion or on separate meters?  I would believe that Maintenance & Repairs would run at least double the $12k/year figure.  I see you intend to self-manage.  Not sure about your experience but 38 units is not for the novice landlord.  I'd find it hard to believe it is currently performing at a 14 cap but maybe you found a unicorn.  Best wishes on the decision!

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  • Andrew Michaud
    OP
    Bangor, ME · Member since 2017 · 72 posts · 19 votes
    4y
    Quote from @Brandon Vukelich:

    Already a lot of good feedback here.  Red flags for me that stand out on the financials are water, sewer, trash and maintenance.  W/S/T $3800/year?  Are the tenants being billed back a portion or on separate meters?  I would believe that Maintenance & Repairs would run at least double the $12k/year figure.  I see you intend to self-manage.  Not sure about your experience but 38 units is not for the novice landlord.  I'd find it hard to believe it is currently performing at a 14 cap but maybe you found a unicorn.  Best wishes on the decision!


     I currently have 20 units. Reason Water/Sewer is so low is 2 of 3 properties have their own well and septic. This will be a large purchase but don't think it will be too bad. Hopefully not many phone calls!

    1Reply
  • Ed Emmons
    Specialist · Milford, ME · Member since 2016 · 630 posts · 378 votes
    4y

    The exact address is important in Lewiston. Some neighborhoods will be difficult to collect rents. I went to war with PTL several years ago and they told all my tenants not to pay rent. There was no reason other than they could. So look really close at the whole deal. If you want more info you are welcome to PM me.

    3Reply
  • Alex Ramirez
    Rental Property Investor · Houston, TX · Member since 2019 · 184 posts · 147 votes
    4y

    Hi @Andrew Michaud from what I can see it looks like a good deal. Now, I'll be curious to see if there is value to be added so you can bring that cash flow up even higher and the property value. Do you know how much are the market rents compared to what this place is renting for? Is there any room for improvement? Also, how much vacancy do you have? Does the Gross income match the rent roll per the leases in place? I recently bough a 12plex in Texas for $30K per unit and I did not do a full inspection. Turns out all AC units are going to have to be replaced soon as well as the roof. I suggest performing a detailed inspection unit by unit, remember you can use an inspection report as leverage to get the seller to decrease the price. Also, a good idea when you take over is to implement RUBS, so this is basically charging your tenants back for utilities, including trash and pest control. Insurance you can shop around to improve your current expense and electricity you can replace all the light bulbs to LED ones to cut your bill quite a bit. Let me know if you have any questions. Best of luck to you!!

    0Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    4y

    I don't know the area at all but the numbers look great!

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  • Charlie MacPherson
    China, ME · Member since 2014 · 3k+ posts · 4k+ votes
    4y
    As a business broker (and former Realtor), I'm looking at this a little differently.  Let's assume all of your numbers are correct (Though $579/year per apartment for heat seems very low).

    From 10,000 feet, I see an investment of $1,330,000 and a cash flow of $192,972 before debt service - PLUS - you're self managing, so you've pretty much bought yourself a full time job.

    I compare this to other types of businesses.  A pizzeria for example (and not very far from Bangor).  Asking $325,000 with the owner working and a cash flow of $156,000. 

    Yes, it's also a full time job, but the amount of hassle making pizzas and sandwiches compared to the amount of hassle with owning rentals is not even close. 

    No evictions, no searching for new tenants, no CAPEX, no building inspectors breathing down your neck, no Fair Housing "testers" or lawsuits, no clogged toilet calls at 2 AM, none of the infamous "3 Ts" (toilets, termites and tenants), etc.

    The trade-off is that you don't own the building and therefore don't have the appreciation in the real estate value.  However, if your build your pizza shop and maybe expand to new locations, you're building a business that someone like me can sell when the time comes.

    Good luck!
    3Reply
  • Will Stewart
    Investor · MA · Member since 2014 · 164 posts · 114 votes
    4y
    Quote from @Ed Emmons:

    The exact address is important in Lewiston. Some neighborhoods will be difficult to collect rents. I went to war with PTL several years ago and they told all my tenants not to pay rent. There was no reason other than they could. So look really close at the whole deal. If you want more info you are welcome to PM me.


     This is what I was getting at with my response, just make sure with someone who knows the area, very easy to get blinded by the numbers. 

    0Reply
  • Bethany TuronPro Member
    Property Manager · Durham, ME · Member since 2019 · 179 posts · 102 votes
    4y

    Lewiston is really street by street, for example, if this was on Blake, Knox, etc, It's quite possibly not a good deal.  It depends on building condiiton as well.  Feel free to PM to discuss further.

    0Reply
  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
    4y

    @Andrew Michaud, what you have labeled as "Net Income" is actually "Net Operating Income" (NOI).

    Value of the property = NOI/Cap rate

    At a cap rate of 5 (not sure what it is in your market but this is a conservative national avg), the value would be around $3.8mm

    The expenses seem on the low side as others have said. Also add in property management, payroll, etc for underwriting purposes.

    Are these expenses from the seller or broker's pro-forma or actual T12? Don't forget to factor in increased property taxes after the sale, etc.

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