Good or Bad Investment?

[Michael V.]

Looking into this property. In need of a second opinion.

Price	$750,000	Property Sub-type	Garden/Low-Rise
No. Units	45	Property Use Type	Investment
Building Size	35,000 SF	Cap Rate	17%
Price/Unit	$18,000	Occupancy	91%
Property Type	Multifamily	Lot Size	2 AC

Annual Total: 172,800

Operating Expenses (including annual taxes, maintenance and property management): est. 40,000

Annual Net Operating Income: 122,400

Monthly Income: 10,200

Coin laundromat on premises

If Financed:

Cash Down 20% $150,000

Financed 80% $600,000

With 3.5% APR and 30 Year Amortization Monthly Payments are $3367.84

Monthly Income $6832.16

Annual Income $81,985.92

[Don Konipol]

It looks like the units rent for about $350 per month each.  Apartment complexes with low priced units do not have expenses of 23% of income.  The expenses for these types of units are 60% of revenue or more.  

Sometimes, people who want to sell defer maintenance expenses, pay bills next year, 'forget' to list some expenses, etc to make the net income look higher than it really is.  These are the expenses usually 'massaged' or omitted entirely

Repairs

Maintenance

Real replacement depreciation

Leasing fees

Legal and eviction expenses

Special tax assessments

Water bills

Common area utilities

Accounting fees

Fines and penalties

Vacancy expense

Outside contractor

Handyman

Office supplies

Value of manager's apartment

Referral fees

My advise is to go over the expenses and see (1) what expenses are missing from the financial statement (2) verify that the expenses appearing on the financial statement are in line with property averages for the area or there is a good reason they are not and (3) verify actual occupancy rates over the last 2 years.

If you still have a deal obtain the last few years tax returns, and see if the returns match the financial statements. 

If you do not have the expertise, knowledge and experience to re create a realistic pro forma income statement, pay someone who does.  You may have stumbled across the one in a million deal that defies the operations of all the others, but the odds are against it.