Could someone look at my numbers on a 12 unit Apartment complex

Question

I was wondering what everyone's thought was on this 12 unit apartment complex.

Two of the units need completely gutted and rehabbed and the others are just mostly paint, flooring, a few minor bath and kitchen updates.  I also priced up adding A/C to these units along with washer & dryer in each unit.  I need to do these things to match what is in the local area.  This property is located within one block of a local state university where I believe that I could get more than $500/unit but am trying to be conservative.

https://www.biggerpockets.com/calculators/shared/474438/a8af3b77-b7e2-4b74-902f-bfa5009a4612

James Wise · Answer

John Frank You can't really get any cheaper than what your paying anywhere else in the country. If you are up to put in the work on the project I see no reason not to go for it so long as you are capable of handling the tenant pool that lives in the area.

Michael Swan · Answer

Hi John Frank,

If this is your first apartment deal ever, I would estimate everything higher.  It is much better to be safe than sorry.  Most people run out of money, before they reposition a property on a value play.  You need lots of reserves for rehab and for Muphy's Law when it occurs.  My first few Apartment complexes were bad news.  One complex, half the entire roof was blown off in my first winter when I had 50-60 mile an hour winds.  With insurance, I still paid about $10,000.  Then, the city cited us for some apron and sidewalk violations and that cost us another $4500.00.  Then we had a Water and sewer leak we were having difficulty detecting.  That was another $10,000 in increased water and sewer bills and repairing cost another $5,000.00 too. Last, parking garage door buckled and we replaced for another $2,000.00.  We were originally planning on $15,000 Cash Flow per year.  Soooo, we have actually lost money and the only one making money on this complex for the first 18 months of ownership is the PM and landscaper etc.

That's why you need to overestimate all your expenses!!  Of course, I have 6 apartment complexes and 2 have been failures so far and 4 are going really well!! I expect to cut my losses on the 2 duds a 10 unit in Cleveland Heights, right by South Euclid and an 8 unit in Shaker Heights.  Both complexes are in Cuyohaga County.

I forgot to mention in this particular area the RE Taxes are 5-6% of sales price each year!!  Not good!!  My other 4 apartment complexes have much lower RE tax rates.  That has also driven up my expenses too on these two particular complexes.

Swanny

Jeff Kehl · Answer

John Frank the numbers definitely look good... almost too good. Where do your rehab estimates come from? What is the history of the property?  Why is the owner selling? How did it get to this state and who is living there currently? What are the options/capacity for students living on campus? What is the current occupancy of the property? What is your plan for property management? How are utilities handled?

Pedro Martins · Answer

John Frank

without a lot of info, I would say:

- 4% vacancy seems low, specially in what I imagine are 1bed/1ba units, which tend to attract a more transient tenant.

- $20 electricity? if this is common area, I tend to use $100 per unit per year

- 6% interest rate seems high, particularly for a 15 yr

- even post-rehab, 4% seems low for repairs

- can you get financing for the rehab at the same time as purchase?

John Frank · Answer

I am still in need of figuring out a way to be able to purchase this property as I have no cash reserves.  I thought of putting up my current properties as collateral ($116,000 in equity) but the bank that I was working with told me that I still need to put down 20% of the initial purchase loan and then they would use my other properties as collateral for the construction loan.  To me that didn't seem right but this is my first commercial deal.  Can anyone please help point me in the right direction.  I would hate to miss out on this deal.

John Frank · Answer

This is all great information guys.  I thank you for all of the input.

@Jeff Kehl my rehab numbers were based on what I had figured it would take to rehab the property.  Like I said there are two units that need a complete rehab (the one had a small fire in the living room which the previous owner has already gutted the unit. The other unit is in need of major repairs to the flooring and and bath and kitchen.  The other units are basic paint flooring and minor updates to the bathrooms and kitchens.)  The property was fully occupied until the previous owner left the property go for foreclosure.  I believe he was going through a divorce.  Currently there are only two units rented since it is bank owned.  My current real estate agent also provides property management and I know them well as we attend the same church.  All utilities have separate meters.  The only thing that isn't is garbage.

Joseph Gozlan · Answer

@Pedro Martins Fed's beed raising interest rates and about to do that again. The latest quotes I'm seeing come at 5%-6% range.

John Frank · Answer

- I used the 4% vacancy as I figured about 80% of the units would be college students which are really only in the unit August - May but you price there rent as if they were paying for the full year.  I own a couple properties in the same town and that is how they price them.

- $20 electricity is for the mechanical room that is about 8 x 5.  I probably should bump that up a little since it does have an electric heater in it for the winter time.

- What interest rate do you suggest?  Can I get someone to lend 30 yrs?  I haven't seem to be able to find anyone willing to go 30yrs.

- What do you suggest for repairs.

-  That is what I have been talking to the banks about however this was going to be my next question in this forum.  I think that this is a good deal especially for our area where these types of properties are hard to come by.  The problem that I have is, I have tie up all of my cash this past year as I purchased two SFH and two Duplex's.  Both SFH were rehabs and I had to do a minor rehab on 1/2 of the one duplex.  I was looking for suggestions on how to finance this deal.

Could someone look at my numbers on a 12 unit Apartment complex

Most Popular Reply