Is this a deal? Learning multi-family

3 Replies

Hey Guys! Noob here. 

Long story short, I have a friend who is a real estate agent and through the MLS made a rule to send me 16+ units, seller will carry multifamily/apartments every monday. I don't believe this is a deal but I think this will be a good exercise in learning what to look for as although I do wholesaling my main goal is to buy and hold multi-family properties. Gotta start learning this!

Anyway it is a mobile park here in Arizona. Here are the details. Also do not hesitate to comment/criticize. I NEED to know, fully understand this stuff. Let me know anything and everything.  

This information is direct from the MLS.

25 units
Zoning: C- 2

Adjusted Gross Inc:$133,912
Other Income:$25,400
Operating Exp:$59,547.78
Net Operating Income:$79,870
Owner Association:No
% Vacancy Allowance:0.05
Annual Elec Exp:$1
Annual Gas Exp:$1
Annual Ins Exp:$1
Annual Land Lse Exp:$1
Annual Landscape Exp:$1
Annual Legal & Acctg:$1
Annual Maint Exp:$1
Annual Mgmt Exp:$1
Annual Other Expense:$54,170
Annual Ownr Asoc Fee:$1
Annual PAD Fee:$1
Annual Rplcmnt Rsrvs:$1
Annual Trash Exp:$1
Annual Wtr/Swr Exp:$1

Tax Year: 2016

Taxes: $5,364.78

Ownership: Fee Simple

Range: 2E

Section: 8

Equity: $875,000 (free and clear)

Monthly Payments: 1

Assessment Bal Yrs: 0

Assessment Balance: $0

Cap Rate: 9.13

Down Payment: $1

Down Payment %: 1

New Financing: Seller May Carry

Reports/Disclosures: None

Value is $849,777, NOI $79,870 Cap rate 9.13. I know that you can get cap rate by dividing the value by the NOI so I did that and got 10.63950169024665---10.6. So I feel the numbers are off or maybe I have no idea what I am talking about (likely case).

I currently do not know the physical occupancy or the economic occupancy of the property. Please let me know what other information I need to gather to determine if this is a good deal or not. If anything, as stated above, this is learning experience for me and I need to know this like the back of my hand.   

I appreciate all feedback and thank you! 

Hi Stefan,

I specialize in Multifamily in Phoenix. This is a mobile home park, and while different.. I can share some insight. A market CAP on mobile home parks is probably around 10%. That would mean on a $1,000,000 purchase price you would have a NOI of $100,000. NOI is before Debt service, so your cash on cash would be dependent off that your Down Payment, interest rate, and amortization.

For multifamily, our current market cap rates range from 5% to 6%. Vacancy is traditionally 5% physical (turning units) and 5% economic (loss-to-lease). Expense vary on landscape/pools/size/ect.. but I would say 40% is a guideline (having a 3rd party property manager). 

Financing is much more lenient with apartments, as Freddie Mac Small balance is lending up to 80% LTV and conventional with hover around 70-75%.

Going back to the mobile home park, it may be worth checking into what terms the owner would carry on. This would replace bank financing and could be advantageous if very favorable. 

@Stefan Crichlow

@Brandon Turner  is or has been looking for a mobile home park. Maybe he could chime in if he has the time to share his wisdom. I'm sure he has been analyzing a lot of opportunities in this space. It's worth a shot, which is why I tagged him in this thread.

I personally would analyze this deal at 10% vacancy, not 5% and I'd question some of the other listed expenses at $1, so my gut says the NOI will be less than $79,870. There needs to be a lot of due diligence done to get a clearer picture.

However, on a first look based on numbers provided, the NOI of $79,870 (assuming this is an ACCURATE actual number), the CAP RATE is 9.3 with the value at $849,777 ($79,870/$849,777). If I wanted a 10 CAP and the NOI is actually $79,870, I'd put a value on the property of $798,700 and offer 8%-10% below that number, to start the negotiations! It's aggressive, but so be it.

No clue what your COC is because not sure what your final acquisition costs will be based on the numbers you have provided.

Good luck!