Newbie wants to buy $5 Million apartment complex

Multi-Family and Apartment Investing
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Newbie wants to buy $5 Million apartment complex

Jakoby Moore
Wholesaler · Denton, TX · Member since 2016 · 8 posts · 1 vote

unorganized compiled thoughts and information about this deal

I pass by this place every day on my way to work and it is near UNT here in Denton. I just feel like it could be worth owning. The complex is in an area that is very up and coming and I think has major potential. There are several apartment complexes in the area being built and remodeled and the population and property values in Denton are rising. However, I'm a noob and I am here seeking counsel. I have read up on common mistakes and the importance of the underwriting process as well as a few other things and I am unsure if the seller would take a low offer. But I really want to know if something like this deal is even worth it. What else do I need to know? Please help!

Some Numbers

  • asking price $5,900,000 
  • currently poor CAP 4-6%?? idk
  • should I Offer $4,000,000??? 
  • 97 units
    • studio $630/mo per unit (7) $4,410/mo
    • studio $630/mo per unit (7) $4,410/mo 
    • 1b1b $785/mo per unit (20) $15,700/mo 
    • 1b1b $795/mo per unit (19) $15,105/mo
    • 2b1b $875/mo per unit (28) $24,500/mo
    • 2b1.5b $930/mo per unit (16) $14,880/mo
    • 100% occupancy @ current rates yield $79,005/mo $948,060/yr

The next numbers in this section are according to one of the listings I found and are not verified

  • Gross Annual Expenses: $446,168
  • Gross Annual Income: $853,658
  • Net Annual Income: $407,490
  • Insurance Expense: $37,902

Major Variables

Seller's financials all currently unknown

-bank deposits

-expenses

-taxes

-insurance

-management

-maintenance

-staff

-lawsuits between tenants and owner

-current occupancy of each floor plan (something online said 95% but, I doubt it)

-delinquencies

condition of

-structure

-hvac

-roof

-plumbing old needs maintenance

-foundation

-parking lot

-pool pumps/cleaning

Noticeable areas of improvement

exterior paint, shutters, landscaping need updating

pool and pool area is small and ugly

office needs to be remodeled

marketing: none

website sucks

reviews give 3 stars at best

reviews online from tenants state there is only 1 maintenance person and multiple plumbing problems and poor management and possible pest control problems

Other notables

Been on realtor.com for 361+ days

mature trees

soccer field (could be re purposed)

year built 1974

class c complex

Pets ok

reviews online from tenants state there is only 1 maintenance person and multiple plumbing problems and poor management 

remodeled in 2010

On the UNT bus route

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Percy N.
Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
10y
Jakoby Moore , I recommend partnering with a more experienced investor. Are you planning to pay cash, finance it or raise money from investors? If the later two you will need someone with experience. Why is the cap rate so low and what is the economic vacancy?
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  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
    10y
    Jakoby Moore , I recommend partnering with a more experienced investor. Are you planning to pay cash, finance it or raise money from investors? If the later two you will need someone with experience. Why is the cap rate so low and what is the economic vacancy?
    3Reply
  • Chris Tracy
    Specialist · Plainville, CT · Member since 2015 · 478 posts · 389 votes
    10y

    @Jakoby Moore-

    Where did you get all that info? Is that pro-forma info from a broker? You don't want to use that. You said the seller's financials are unknown... Can you get a T12 and a current rent roll?

    I'll help you underwrite this appropriately, so you can determine if you want to make an offer.

    1Reply
  • Brent Shryock
    Real Estate Lender · Jacksonville, FL · Member since 2015 · 86 posts · 51 votes
    10y

    This seller wants a 6.7 cap rate, that's  probably the reason it's been on the market for a year.  

    In this hot multi market a lot of sellers think their property should be worth more than reality.   Sometimes they will never realize that they don't have the prettiest girl at the dance.

    Bottom line is You really don't know what the story behind this property is until you see the real numbers.  Owners tend to "forget" to include reserves, management fees, etc...when trying to sell.

    1Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Chris Tracy:

    @Jakoby Moore

    I'll help you underwrite this appropriately, so you can determine if you want to make an offer.

    Do you have any actual cap rate comps you could share? 

    1Reply
  • Jakoby Moore
    OP
    Wholesaler · Denton, TX · Member since 2016 · 8 posts · 1 vote
    10y

    The info I put together was just from the different listings and rental websites. I will contact the broker tomorrow and reply  on this post with the information I get. So I ask for the last 12 months financials, and what else?

    0Reply
  • Kelly Courtney
    Real Estate · Oak Point, TX · Member since 2015 · 44 posts · 15 votes
    10y

    Have you confirmed these are still for sale?  I believe I looked at them a few weeks ago and checked about a week ago and they showed to be pending.  There are also a couple other sub $2M properties in Denton county that were available.  These are very nice but for some reason I was thinking they were pending (assuming I am thinking of the same places).

    1Reply
  • Jakoby Moore
    OP
    Wholesaler · Denton, TX · Member since 2016 · 8 posts · 1 vote
    10y

    Ya nevermind lol. Shows as pending now

    0Reply
  • Chris Tracy
    Specialist · Plainville, CT · Member since 2015 · 478 posts · 389 votes
    10y

    @Jakoby Moore-

    Ask for "The T12" and a current rent roll. Get the OM too. It's the flyer that has all the basic info, typically a write-up about the market, etc.

    Explain to the broker that if possible, to send you a T12 that is broken down month-by-month because sometimes brokers/sellers just send you the annual total and that doesn't help you.

    You want to see a trend when you are analyzing the income and expenses.

    0Reply
  • Chris Tracy
    Specialist · Plainville, CT · Member since 2015 · 478 posts · 389 votes
    10y

    @Jakoby Moore- 

    Call the broker anyway... Don't give up!  Really what you want is the relationship with the broker, so he/she sends you deals in the future... especially off-market stuff.

    Ask that broker if there is anything else you can take a look at.

    1Reply
  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    10y

    If the name of this complex is Salem Ridge, I know who is buying it :-)

    1Reply
  • Jakoby Moore
    OP
    Wholesaler · Denton, TX · Member since 2016 · 8 posts · 1 vote
    10y

    That's the one. Do you know what his plans are for the place Nick?

    0Reply
  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Jakoby Moore:

    That's the one. Do you know what his plans are for the place Nick?

     PM me. I'll get you in touch with this guy.

    0Reply
  • Brent Shryock
    Real Estate Lender · Jacksonville, FL · Member since 2015 · 86 posts · 51 votes
    10y
    Originally posted by @Nick B.:

    If the name of this complex is Salem Ridge, I know who is buying it :-)

     If they need some quotes on non recourse agency debt, let me know. :)

    0Reply
  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Brent Shryock:
    Originally posted by @Nick B.:

    If the name of this complex is Salem Ridge, I know who is buying it :-)

     If they need some quotes on non recourse agency debt, let me know. :)

     They have everything covered. 

    1Reply
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