100% vacant 20 unit apartment

[Steve Yoo]

Hi everyone! I looked at a 20 unit apartment building. Currently it is 100% vacant. The area is developing and I am assuming in a couple years the area will go up in value. The city is building a huge park, stadium and public transportation is with 2 miles. The apartment is vacant because there are plumbing issues and not suitable for tenants to live in. The landlord is not making any money except paying expenses. He is asking 260k. Each unit will rent for approx $550-650/month. Renovation will be approx 200k. I don't know how to value this property and if what the current owner is asking is worth it. Any feedback would be very helpful. Thanks! Steve

[Joel Owens]

Look if the density rules have changed. Also look at if commercial can go there versus multifamily. Additionally look at how much land this sits on for redevelopment. Value is in usable and buildable land.

Check what is around this property if a lot of new buildings are going up or it's still the old part of town with everything falling apart.

Renovation likely is 300k plus once you count water and sewer lines to street,roof,windows,parking lot, sidewalks etc. It all starts adding up fast.

20 units at 500 a month is 10,000 X 12 = 120,000 gross expected income 

Take away 50% for ongoing opex,management,evictions,vacancy, etc. you have 60,000 NOI

60,000 NOI at a 10 cap for just an okay area is 600,000 sales price.

You will have purchase cost to close it and hard money ongoing fees if you do not pay cash for purchase and rehab. Figure 10% when you sell for 6% commission down the road and additional 4% closing costs for a net of 540,000.

So essentially you will have a massive headache and turn around with little to no equity upside just ongoing cash flow once stable. This is why the highest and best use comes in to play where for example it's sitting on 7 acres and you get 150k an acre from a developer etc.

If the only possible exit is to stabilize and sell there is too much work for any upside. This is why people look for 50% occupied or better because it's easier to turn around with some income. If you are going to take 100% vacant to fully performing you better get an amazing return on your time with equity upside.