100 Unit Property Under Contract - Seeking Input from Fellow Investors

Multi-Family and Apartment Investing
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100 Unit Property Under Contract - Seeking Input from Fellow Investors

Azeez K.
Investor · Atlanta, GA · Member since 2013 · 646 posts · 392 votes

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

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Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
11y

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?

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  • Rick Baggenstoss
    Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
    11y

    I think you've received some good input on your snapshot numbers.  Here are some other things I'd also want to investigate.  More strategic questions about whether this property will enjoy some momentum or if there's a serious issue to address.

    Albany ( pronounced Awwwl binee) -  It's a good sized town but the economy isn't terribly diversified.  I'd look into the local economy.  My guess is it's in an fairly early recovery so you're timing is very good.  

    I'd look very hard at who are the top employers for your tenant base.  Can you learn anything about how they're doing and their near-term outlook for hiring.   Any major moves announced?  

    How's your competition?  Any new apartments being built?  Any properties nearby that tenants tend to evaluate along with yours?  What makes yours better/worse?   Is there marketing info one how the last 30 tenants and 100 applicants found the place?  

    Is the property in an area of town that's still growing, stable, or in decline?  

    Great to see you make a run at a big property like this.  I'm sure you're very capable of making the best out of it.  

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    11y

    My experience has been that owners that buy REO want to stabilize as fast as possible to sell and get the cash out. So underwriting EACH TENANT is critical.

    When each lease was executed was a rent credit given for half off or first months rent?? The security deposit waived or severely reduced to get  a tenant?? This will drop rent numbers per unit they are showing. Did the owners use qualifiers for tenants standards and lease approvals?? What is common for the area??

    Banks do puffing when trying to sell REO but so do owners after they have bought REO. They want to put quick tenants in with little thought to long term stability of the rent rolls. It does no good to buy at 85% occupancy when it is a fleeting income level that will not sustain due to poor lease up. In that case you have heavy future loss leases and expensive turnover per unit repairs and the property is worth less than you bought it for.

    Not trying to be a downer but this type of property has had it's ups and downs and could go either way. I have seen people make a lot of money but also lose their shirts before in these situations. 

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  • Eric Halverson
    Wholesaler · Atlanta, GA · Member since 2015 · 39 posts · 9 votes
    11y
    Originally posted by @Joel Owens:

    My experience has been that owners that buy REO want to stabilize as fast as possible to sell and get the cash out. So underwriting EACH TENANT is critical.

    When each lease was executed was a rent credit given for half off or first months rent?? The security deposit waived or severely reduced to get  a tenant?? This will drop rent numbers per unit they are showing. Did the owners use qualifiers for tenants standards and lease approvals?? What is common for the area??

    Banks do puffing when trying to sell REO but so do owners after they have bought REO. They want to put quick tenants in with little thought to long term stability of the rent rolls. It does no good to buy at 85% occupancy when it is a fleeting income level that will not sustain due to poor lease up. In that case you have heavy future loss leases and expensive turnover per unit repairs and the property is worth less than you bought it for.

    Not trying to be a downer but this type of property has had it's ups and downs and could go either way. I have seen people make a lot of money but also lose their shirts before in these situations. 

     Good point Joel.  We are doing a lease audit next week which includes background check information.  Their deposits ara matching up with their rent rolls so payments are looking good at least for the last few months.

    Clearly we will get a better picture of what everything looks like then but some good things to be weary of.  We use 3x rent, worst case 2.5 for tenants so we will see if they did that for the majority as well.

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  • Rob Cee
    Lebanon, NH · Member since 2012 · 258 posts · 87 votes
    11y

    This is a terrific thread thank you for starting.  I think the two best types of threads on BP are: 1. Where people post specific deals and get feedback, and 2. When people talk about mistakes they have made on properties and the past and lost money, what went wrong, and what they would do if they could do it all over again.

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  • Eric Halverson
    Wholesaler · Atlanta, GA · Member since 2015 · 39 posts · 9 votes
    10y

    I've been inspired by the most recent podcast to give a quick property update:  

    Current Occupancy:  98% (was 100 but 98 is probably a good consistent rate)

    rents are now up to 495 for a 2 bed and 595 for a 3 bedroom... water has now been passed on to almost all of the tenants and will be complete here in a few months when the last remaining leases are renewed.

    Turnover costs were higher than anticipated as we had approximately 40 people move out so that absorbed all of the cash flow.  Oh, and ironically enough the new assessment instead of waiting until the following year like we had anticipated was done literally 2 weeks after we bought which seemed rather abrupt.  It ended up being just a hair below our purchase price.  taxes are around 41,000 now.

    That being said its just now starting to cash flow well and we're looking to do a Hud loan to have a really nice LT cash flowing property unless somebody decides to send us an offer we can't refuse :)

    Carpet will be a thing of the past in a few years as we're planning on making turnover costs a priority and keeping those as low as possible.

    All in all, a solid deal; will be great after Hud loan is complete.

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  • Mike Nelson
    Investor · Oak Park, IL · Member since 2014 · 307 posts · 150 votes
    10y

    Thanks for the update.  98% occupancy is excellent. Hopefully the 40 new tenants will be an improved group.  What is carpet going to be replaced with?

    0Reply
  • Eric Halverson
    Wholesaler · Atlanta, GA · Member since 2015 · 39 posts · 9 votes
    10y

    vinyl plank or something similar.  We are testing a few different ones.

    0Reply
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