8 unit multifamily in Georgia - Should I buy?

[Vitaliy Pynzenyk]

Hi  - my friend needs CASH (want to build a residence in country club) and is Selling his 8 units multifamily complex. Here is the DEAL:

8 units, (7) 2BR, (1) 4Br, renovated in 2012, currently fully leased.

Negotiated Price - 425K

Monthly Rent  - $5,300

Management fee - 8%

Insurance - 2,400 annualy

Property Taxes 6,500 annually

Yard maint - $100 monthly

I am planning to finance with 25% down. Does this deal make sense? It looks decent to me based on CAP, CASH on CASH, Gross rent multiplier ratios.

Please share your feedback.....

[Matthew Ries]

Does the property need any immediate improvements/repairs/deferred maintenance?  

I put these numbers into a spreadsheet I use - disclaimer I am by no means a seasoned MF investor, but my results are below:

Assuming it's turnkey, with an estimated 5% vacancy, and mortgage terms of 25% down @ 5% x 25 years

Allowing 10% of rent/mo for CapEX and 10% for Maintenance/repairs

This deal generates ~$108/unit/mo cashflow, Cap Rate of 7.5%, Cash on cash ~8.75%, DSCR 1.47

To me this looks like a good deal, but I think you'd want to look into a few more things - rent roll, are the tenants current?  Any trouble tenants?  Are rents competitive - room to increase them?  Need for upgrades/repairs to facilitate raising rent?  How is the PM company?  8% management costs and how is the contract structured?

If you are buying it from a friend, you might be saving some on the purchase side if you aren't going through an agent?  I factored in 3% for closing costs

I am always trying to analyze MFs and learn from running the numbers, so please let me know if I have missed something or where the flaws in my analysis might lie.

Thanks and good luck Vitaliy!