100 Unit Property Under Contract - Seeking Input from Fellow Investors

[Azeez K.]

All,

My team and I @Matt Wood @Mike O'Connor @Kiran K have recently got a 100 Unit Multi-Family under contract in Albany, GA. As always, I would love to get your inputs on the deal. 

Here are some of the key stats:

Purchase Price: $2.8M

Units: 100

Unit Mix:

50 3bed/2bath's @ $580/month

50 2bed/2's @ $425/month

Financing Approach:

80% Bank

20% 

• 10% down payment
• 10% seller financing @5% with a 5 year balloon

Conservative Annual Financials Financials:

-15% vacancy

-Rent potential: $618,000

-Property Taxes: $30,000

-Insurance: $21,000

-Maintenance / Repairs: $60,000

-Water / Utilities: $68,000

-Advertising: $4,500

-Property Management: $52,530 (management fee and employee salaries)

-Garbage and Recycling: $15,000

-Landscaping / Pest Control: $18,000

-Security: $5,000

In summary:

-$525,300 gross income

-$273,030 total expenses

-$177,396 (5%) annual mortgage

oFirst 5 years: Seller financing repayment on 10% of purchase price @ 5% interest rate

Opportunities:

-Sub metered, but water is covered by current owner (~$55k)

-Increase rent on 2/2's to $485

We would love to hear your thoughts on the good, the bad, and the things we haven't considered or simply answer any questions that you have. Tagging @Joel Owens and @Ben Leybovich

[Ben Leybovich]

1. So - the 15% vacancy you refer to is economic + physical? If so, it's not enough for this class of property in my opinion.

2. Property management is grossly under-priced it seems. The management contract will cost no less than 3.5% of gross, likely 4% - about $25,000+. Then you need at least 2 full time people, likely more - unless you plan to post eviction notices yourself :). Very aggressive pay roll (which is on top of management) would be $900/door. Realistic pay roll a few hundred more. Sorry...:(

3. Where's the bad debt? Unless you think that $500/door tenants always behave properly...

4. There;s much more, but the big thing is this: What is your exit?

Here's some perspective, @Azeez K. I don't buy 4-plexes with $485 rents. Why - because I can't manage that class of tenant and keep my sanity at the same time. I sure as hell wouldn't try that with 100 doors...

Thoughts?