Thoughts on this deal?

Question

Hey everyone! Just wanted to gauge some thoughts on a deal I have in my state.

46 units 24-2 bedroom 22- 1 bedroom

2buildings, each have a shared laundry room

PP-$1.8 mill

Rehab- $1-1.2 mill (confirming numbers this week)

Gross rent -$450k/year conservatively

Operating expenses-$150k conservatively

It’s in a great location, on a river that will be getting developed in the next 3-4 years so it could appreciate very well. My proforma has it at almost a 10 cap. Thoughts on this deal? When would this deal not be worth it anymore?

Mike Smith · Answer

I agree with @Naz Hossain regarding the high renovation costs.  It's 55-60% of your purchase price, which means a large renovation.  If your costs are off by 10-20%, which is very easy to have happen on renovations, your numbers could be much worse than projected.

I would also dig deeper into your expense ratio.  You are projecting a 33% expense ratio, which is very difficult to achieve.  Most complexes that are older and less than 100 doors will see expense ratios closer to 50% than 33%.

Frank Patalano · Answer

Looks solid based on the info provided. Sounds similar to a deal that I did 3 years ago. Would be willing to review further.

Naz Hossain · Answer

The only thing that can possibly kill the deal is the size of the renovation and possible ARV. 1.2M is about 28-30K per unit. That is quite a bit. If the final valuation of the underwriter in line with your 10 cap, you should be good. Outside of that, if the numbers are really what they are, you have T-12s, 1040s, and rent rolls, you're quite solid.

Mike Strodtman · Answer

The information that has been provided looks good!  Reach out if you like. Would be fun to discuss the details more in depth with you.

Mike Strodtman · Answer

The information that has been provided looks good!  Reach out if you like. Would be fun to discuss the details more in depth with you.

Brett Deas · Answer

Well not knowing anything else about the deal (location, market demographics, unit quality) I think the numbers look good.