I have been looking at a 11 unit apartment building. All units are 2/1. I have not inspected any of the apartments yet, but the common area and grounds seem to be in pretty good shape, just needing paint & carpet etc. I feel with proper management and minor updates, rents could be $750+. I would say this is in a B area with a lot of rentals. Churches, hospitals, shopping all within 5 miles.
One thing I don't like and would get quotes on is splitting up all the heat, air, and water and have them separately metered.
- rent $6875
- Laundry $350
- Advertising $75
- Insurance $125
- Management $700
- Maintenance $700
- Garbage $185
- Electric $565
- Gas $552
- Water $366
- Taxes $1060
I could probably put down about $6,000-10,000, and would try to get the owner to finance the rest of the down payment. If not I would look for some private money. Of course if I could get the owner to take the entire down payment I could use the money I have to start improvements.
Thanks in advance for any advice.
I get a total of $4604 for all the expenses you've listed. Insurance seems low, taxes seem high. Overall they're very high vs. the $6875 in rent. This better be a turnaround play or I wouldn't buy it at all.
Can you really raise rents AND make tenants pay for utilities? If so, that's an area for improvement. But if other properties don't do this you won't be able to either.
Lenders aren't going to let you have the owner carry the entire down payment. They will want to see some of your cash in the deal. Probably something like a 70/15/15 loan is about the best you will do where that 15% is really your cash, not borrowed. You might be able to take on an equity partner, but you will have to give up a portion of the cash flow roughly equal to their percentage of cash into the deal.
As is I don't think I'd go over about $300K less the cost of rehab. I'm assuming a 75% LTV loan at 6% with a 20 year amortization period. I'd assume the loan has either a balloon or ARM. Tough space to get a loan, I've been told. Too low of a value for most commercial lenders, too many units for anything conventional. A full owner carry would be the best bet.
Jon Holdman, Flying Phoenix LLC
Thanks for the reply. That's about what I figured too. It's been on the market for a long time and there's a reason. They are asking $425,000. Time to keep looking.
It takes 6 to 10k to properly vet and close on a property like this.
I would run from this property. You don't even need to search for the problems as too many are already showing themselves. This one isn't even a question mark. If I knew I could bulldoze this property and sell the land for development at a higher premium might be the only way.
I would research and if that was the case would put an option on it with little money down to try and put a deal together.
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