Distressed Short Sale Multifamily

2 Replies

Hey,

I've been buying and rehabbing single family homes and renting them out for a while now and with good success. However, I was wanting to scale up and I prefer projects where there is rehab work as I get the appreciation, lower operational and maintenance costs, as well as better quality tenants where I can repair them. I've found a multifamily project in a smaller town that I'm having a difficult time deciding whether or not this project is the best use of my time and money. I'm looking at taking a family partner on this deal so I can spread my risk out a little bit. The property is probably a c location.

The bank is very motivated to get a deal done. I'm looking at purchasing the property for around $64,000 and putting about $104,000 into renovating the units over a six month rehab timeline.

Here are the specs on the property. 

There are two buildings on a corner lot. 6 units are two bedrooms/1 bath and 2 units are 1 bedroom/ 1 bath. Both buildings were built in 1976. Buildings seem pretty solid, but one needs a roof as well as almost all the windows need replaced. Most units need a full rehab. 

The estimated rents are around $450 for the 2 bedrooms and $375 for the 1 bedrooms. The property needs significant work. Only three of the units have paying tenants, the other 5 units are empty and in poor condition. I estimated I would need to spend about $15,000 a unit on one building and about $11,000 per unit on the second building. I generalized some of the expenses, but for me these costs average out based on past rehabs projects. I would work as the GC and oversee the work and any subcontractors.

I believe I can get the rents up to $500-$550 for two bedrooms and $425-$450 for the 1 bedrooms. 

Estimated Repair Costs front four units in 1st building

1. Flooring $3000

2. Windows $2100

3. Kitchen $4000

4. Bathroom $1500

5. Trim $1000

6. Fixtures $500

7. A?C $$1500 split unit /$3000 central A/C

8. Misc. $1000

9. Landscape $250 per unit

Estimated Costs are $14,600 per unit

I'm going to spend about $15000 per unit

Estimated Repair Costs for back four units in 2nd building

1. Flooring $1500

2. Windows $500

3. kitchen $4000

4. bathroom $800

5. Trim $600

6. Fixtures $300

7. Roof $5000

8.Misc. $1000

9. Landscape $250

Estimated repair costs are $9000 per unit in second building

Roof Repair? $5000-$10,000

Estimated repair costs around $11,000 per unit when figuring in roof costs

Estimated repair costs of $104,000 for both buildings

I could offer $64,000

Repairs would be $104,000

closing costs $2000

Estimated all in costs at $170,000

Estimated Gross Income of $43,800

vacancy 5% $2,190

property taxes $3,000

insurance $2,000

maintenance $2,500

snow/mowing $800

utilities $1000

pm $3,500

garbage $1200

water $1500

Estimated Fixed Expenses $17,690

Estimated Net Income $26,110

Anyways I wanted to get some feedback. This is a big project. If I were to sell this building later on and it was rehabbed what would you value it at? What would the income be worth to you if it were turn key? 

Hi Tyler,

Definitely a lot of info to work with, which is great. I'll start with a few off the top of my head questions split between rehab and ongoing operations.

Rehab:

-Assuming the roof costs come in at $10K, I've got a minimum of $107,200 in costs given your totals. That doesn't include any AC work on the second building (which I assume was excluded as it's not needed. But I'd question that given the overall state of the building you give.)

-Will the tenants continue to live in their current units as work is done, or will they need to be displaced? Their income needs to be factored into this if they stay, and if they need to be moved, depending on their lease, you might need to cover some/all of the costs. There's obviously the potential of moving them into a post rehab unit but will you be able to get the increased rents and as they're tenants prior to you buying will they treat the new unit as well as a new rehab required?

-If the property is in such rough condition, will $2K in landscaping costs and no exterior work be enough to get new tenants at the increased rental rates? All the interior work is great, and probably way overdue, but if someone won't walk into a unit to see it it's poorly deployed capital.

Operations:

-What's current market occupancy and how long do you think it will take to get the units rented? You show how much they can rent for, but knowing how long it will take to rent them, and if you want to keep current residents (assuming they'll pay the new rents), will be necessary to model.

-There's no marketing budget and if you're trying to turn around the image you're going to need to do something which will draw the type of attention you need. You'll need an ongoing cost considered as well as a bigger upfront splash to get people in the door.

-I might have misunderstood something, but I calculated $46,200 gross potential based on rental rates of $425 (1 BR) and $500 (2 BR). Was I missing something here?

There are many more questions to be asked, and I'd be happy to go review some of it with you if you'd like, but this is a good starting point.

-Justin

@Tyler Zindars  

Did you purchase this project? I've got my eye on a similar project and would love to hear your experience if you jumped on it.