10 Unit/ is this a good deal? Please help

15 Replies

I am looking at a 10 unit building in Michigan.  The owner wants $200,000 for it and he will do a land contract at 6% with $50,000 down a 5 year with 30 amortization. It is a mix of 1 bedroom and 2 bedroom.  It is lower income apartments.  The building is about 20 minutes from my house.  

$48,000  rent per year

$3,600   taxes

$3,000  maintenance

$7,200  PM

$900    Trash

$1000    Snow/trash

$400       Hallway lights and parking lot lights

$3600     Water/Sewer

Let me know what your thoughts are about this deal. I have 14 SFH and a 5 unit building now and need help telling how much this deal should go for. Thanks

That's a 14 cap. Seems pretty high. Even if you use the 50% rule to get to the NOI it's still a 12 cap. Does it have a ton of deferred maintenance? To me it seems too good to be true. I'd dig further on the expenses or the condition of the property.

We bought a 14 unit property 3 years ago and have put $20-25k per year into it in renovations.  We knew that going in based on the condition.  You just want to make sure you know what your getting into.

Good luck.

Do you know why the owner is selling it? If you can get a story between the owner and the property, it might put some some perspective to the deal.

He is the same owner for 20 years.  He did not say why he is selling the property.

Thanks

It's good that you included common area costs but I don't see insurance, cap ex, or vacancies. On top of that, what's the condition of the property now. Are you going to have to do much repairs off the bat?

@Brad Starks At 50% rule it seems like a decent deal. I would ask for rent rolls and past few years of P&L to see real expenses over the years and not just the past year.

A lot of these lower income properties have higher cap rates because you have to deal with the problems that historically come with lower income tenants. As long as you are prepared for these issues and have a process in place the numbers look good.

I looked it over and I feel it will need 40k in the next 5 years. It will need a new roof, 5 new furances and 6 new Windows.  Does it still look like a good deal?  Thanks for you help.

If you can make a profit flipping it in 3 years, maybe, but the next investor may be wary of the maintenance coming due in 2 years by then and ask for a discount. What would be your return for other investments accounting for risk as well? Can you make 20+k a year from 200K invested in a dividend stock or index fund? Unlikely...BUT a dividend index fund won't have much risk considering how diversified it is.

The owner is firm on the $200,000.  Any other thoughts?

Did you have the property inspected?

No... should i have it inspected?  Every house I have bought i inspected myself

How much did the Owner pay 20 years ago? (If you look up the exact address on sites like Zillow, the sale history should be right there). Secondly, are there any SOLD comps nearby?

By comparison, are there any SFR's in the area for just $20k (that also rent for $400/m)?

If so, then this 10-plex is NOT a bargain! (Or, what IS the cheapest SFR there?) All the best...

He bought it 20 years ago for $130,000.  It is a nice small community and i dont see any rentals for $20k.  There is a duplex for $120k.  

Originally posted by @Brad Starks :

He bought it 20 years ago for $130,000.  It is a nice small community and i dont see any rentals for $20k.  There is a duplex for $120k.  

I guess the REAL question (for me) would be: who wants/needs to rent in a 10 unit apartment building, within a small community? What's the vacancy rate? Is it being managed well? 

My own little research suggests that values have NOT necessarily increased in the area during that time. eg. http://www.zillow.com/homes/for_sale/Ionia-MI/pmf,...

ie. That one sold for $83k in 1999, but now the market won't pay more than $46k. Cheers...

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