So I found a 20 unit apartment complex in PA that is being sold by the owner's son for asking price of $325k with (his estimate) an estimate of 150k in rehab. It is a full gut job. There are no tenants in place at the moment. He doesn't have any clue how much it used to rent for. However, checking online, the rent per unit averages to about $550 for 1 and 2 bedrooms. So in theory, it could cash flow $11k (before expenses). I would predict that worst case scenario half of that would go to expenses. So my question is, I'm meeting him tomorrow to see the property, are there any questions that I should definitely ask that I am not thinking about? Thank you very much!
What is the cap rate for the area. Does it have designated building from the authority. Example -- you cannot re-frame the 1 bedroom to a 2 bedroom since it maybe designated for only 20 1 bedrooms.
I am surprised your rehab is only 150K. On a 5 unit one of the contractors i spoke to quoted me 95K. If you are confident on the 150K seems a good deal. Also in PA -- they have unionized contractors for big jobs. So definitely check on that.
Let us know how it goes .
others may have a better answer, but quick thoughts because it is a full gut and sitting empty.
1. back taxes, water bills, other liens ?
2. occupancy permit (not rental permit)
3. residential or commercial lot...legally zoned?
4. sewer as in title 5?
6. not sure about the legal phrase, but is it clear or through probate?
Not sure how a 20 unit complete gut job is only $150k, when I do a complete gut job I spend $20k a unit
If there are separate heating sources you could spend $75-100k there and $3000/kitchen with appliances puts you at $130-$160k and that's before flooring and bathrooms
@Johnathan Boyle I have a print out of questions I recommend investors to ask when purchasing an apartment building. I cannot attach a pdf here, but if you send me your email address I can send it to you.
I would factor $20K per unit and $25-50K for the exterior depending on how extensive the makeover needed. Fix up the outside (power wash, paint, landscaping, windows, LED lighting, parking lot etc), then start going unit by unit. Since you're starting from scratch, try to put all of the expenses on each tenant (water heater in each unit, baseboard heat, submeter water). Focus on putting the bulk of the exterior money in areas that are most visible (ie the front of the building is more important than the back). Start on the units that need the least amount of work/time because the key to success is going to be getting money coming in to start off setting the money flying out of your wallet. Your goal is to stem the bleeding as quickly as you can. Map it out and have a plan of how many months it will take you to get to break even. You have to get to break even or this building will become a money pit. Where at in PA? 550 a unit is really low. And 2 BRs should command higher rent than 1BRs.
@Johnathan Boyle , get the actual financials and/or bank statements and try to figure out expenses and economic vacancy.
Google Michael Blank.
Send me a PM.
If you are doing that extensive of a rehab, I would check with the city and see if you will need to bring the property into ADA compliance. That can be very expensive. Also check on the possibility of lead based paint issues. The govt is cracking down hard on contractors and owners that do rehab work on properties pre 1978 that don't have a clean environmental report.