Need another opinion on a 24 unit purchase

[David Schlatter]

I'm looking for some feedback, we have an opportunity to buy an off market property before it gets listed. A little back ground we own 90 rentals and 4 storage unit locations. So this is not new to us. We have been active since 2007. We are being given the chance to buy 2 -12 unit buildings built in 2018. I building is 12 2-bedroom 2 bath units. All have nice kitchens, lots of storage, full appliances with a washer and dryer in every unit. Other building is a mix 2 bed 2 bath. 3 are 1 bed 1 bath and 3 are 3 bed 2 bath. All have balconies, forced air furnace and central AC. Plenty of cement parking. Rents are average $850 a month, not much room to move up maybe $50 a month. Expenses are $3500 a month with no management fee. And taxes are $1,000 a month not included in the Expenses. They will go up to $4,000 a month in 2031. They are under abatment currently. You may get that number down some. There is a 1% loan that I can take over that has $600,000 left on it. Till 2037 you have to pay $63,500 a year in semianual payments. $5300 a month. Asking price is $2,300,000. I can get a loan for the difference at 6% from the bank. It just doesn't leave much cash flow when i run the numbers. I just don't want to walk away from it if I am missing something. There are not many this nice that come along, right in the middle of our market. In the past we have always bought property that after improvements we could raise rents $200 a month and get decent cash flow. Just not sure if I want 24 more tenants with more yard just to say we have more doors.

i am open to any suggestions and different ideas at how to view this. I do have 8 single families that i can sell and move the money towards, just looking at ideas. Or better ways to finance this?

Thanks for any advice or reading.

David

[Pierre Guirguis]

At $2.3M with average rents at $850 and only ~$50 of upside, this looks more like a yield compression play than a value-add opportunity.

Quick math:

24 units × $850 = ~$20,400/month gross
Call it ~$245K/year gross.

Expenses:
$3,500/month + $1,000 taxes = ~$4,500/month → ~$54K/year (before management).

That puts you around ~$190K NOI range assuming those numbers are accurate.

$190K on $2.3M is roughly an 8.2% cap.

Now layer debt:

You’re assuming the 1% loan at $63,500/year (~$5,300/month).
Then you’re financing roughly $1.7M at 6%. Even at interest-only, that’s ~$102K/year.

Total annual debt service is roughly $165K+.

That leaves very thin coverage and minimal cash flow, especially once taxes reset in 2031. The real question isn’t “Is this nice?” It’s: does this improve your portfolio’s return profile?

You’ve historically bought with $200/unit rent lift and strong forced appreciation. This deal doesn’t give you that lever. It’s stabilized, limited upside, and levered at today’s rates.

Unless:
- You’re planning to bring significant equity
- Or you’re playing a long-term appreciation / debt arbitrage angle
- Or there’s hidden operational inefficiency

This is a capital preservation deal, not a growth deal. With 90 rentals already, scale for scale’s sake probably isn’t worth thin margins and 24 more tenants. Sometimes walking is discipline, not missed opportunity.