Hi All. I'm looking at a couple multifamily properties in Northern Michigan (local to me). They don't seem like good buys, but I'm concerned that I may just have my expense numbers wrong. Below is one of them. Am I missing anything, or including something I shouldn't? Or including things in NOI that I shouldn't? I have one rental, but this would be my first multifamily I'm doing a lot of numbers on these as practice, and plan on touring it next week. Even if nothing comes of it, it is a good learning experience! 6 total units (3 duplexes, Four 2-bedrooms and Two 1-bedrooms) Asking Price 196k (Has been on the market for 14 months. I think they got the price by adding the potential retail price of each duplex, not calculating NOI against CAP Rates for the area (8-9%)) Current Gross Rents: $2,525, I think this could be stabilized to about $3,100. Thanks! Monthly Expenses Cost Item Cost Estimate or Actual? Included in NOI Prop Taxes $500 Actual, seems high, maybe could be lowered Insurance $238 Actual, number from Ins. Agent for Replacement cost, could insure at ACV Water/Sewer $170 Actual, a couple residents have Washers, would charge them for this. Trash $19 Actual Electric $0 Estimate, Tenants pay Gas (for Heat) $0 Estimate, Tenants pay Landscape / Snow $125 Estimate, large shared parking lot, lots of grass, lots of snow Accounting / Tax $50 Estimate Legal $30 Estimate Vacancy/Loss 10% $253 Estimate, number bank appraiser uses Repairs & Maintenance 5% $126 Estimate, appears to be very little deferred maintence, would be confirmed Management 10% $253 Estimate, would self manage, but to put against NOI Total NOI Costs $1,763 ................................................ Not included in NOI Financing $606 Assuming an offer of 100k, 75% bank financing, 20% seller financing CAPEX $125 Estimate at $250/door/year, would be confirmed Total Extra Costs $731 ................................................ Total Monthly Expenses $2,495

Hi Everyone. I wanted to give everyone an update. I went and walked the units with my realtor. The owner just sent us there unaccompanied, so we were able to talk to all the residents. There is more work to do on them then I thought, it seems the current owner is not paying attention to them at all, and letting things slide. One resident mentioned a stove that has only had 2 burners working (Oven is dead too)for 3 years. There are 3 or so windows with massive seal failure, you can't see through them for all the water on the inside. One building has squirrels living in the walls. Multiple residents told us that we were the first people to look at the units int he 14 months they have been on the market. The owner is actually an elderly women, who purchased them with her husband (who has since passed) 26 years ago. Her son has been taking care of them for the last 5+ years, but is not paying attention, seemingly not caring. I doubt the mom actually realizes the state that they are in. The residents aren't complaining too hard, because they are paying massively under market rent, and know it. I think there might be an opportunity to go in and purchase them on conventional financing with a portfolio lender, and do a BRRR strategy on them. I'm going to work on getting a handle on the costs that I wasn't certain about, talk to local banks about financing, and look at putting an offer in. I'll update everyone when I have a game plan. Thanks for all the help!

+1 on this question! Our triplex in rural coal county Ohio is 90 bucks a month for a dumpster that gets picked up weekly, plus the upfront cost of the dumper "drop off". Also lawn care from a good company( not a 14yo neighbor with a push mower) will be 50 bucks to just show up. Snow is bit different, some do a flat rate for the season (i.e. Nov-Mar) or per snow fall/how many times they show up. Salt isn't always included. Pest control? No clue there....

Hi @Michael Plante. The rents are well below market rate. If I bought them, I would do what is needed to fix/spruce them up, and then get to market rents, though not necessarily in 1 year. I'm okay with longer term plans if necessary. I've read many stories on biggerpockets of investors doing this same thing, and many tenants happily paying more for a better place to live. A lot will be answered when I see the properties tomorrow.

What company is the insurance quote from? I would highly recommend an Independent Agent with a good reputation and expertise in landlord properties.

@Mario Brown I have trash and landscaping/snow in there (though that is the weakest of my estimates.) I don’t have pest control, good catch

Are these buildings under the same roof? If not, you may not be able to buy as a multifamily despite how the seller is marketing them, unless you do more of a portfolio loan. As far as the actual numbers, you've done a pretty good analysis, now project what profit you are seeking and make an offer based on that figure. Good luck!

@Kurt Hines No. You are right. I miss read your NOI line. Thought you said NOI was $1,763. I would not shoot it down as a bad deal yet. Just using the 1% and 50% rules it’s still worth looking at. I need some additional information. Financing: If purchased as a group (6 units) it is considered a Commercial property and the financing should reflect that. What are the details of your bank financing at 75% and Seller Financing 20%? If these are 3 separate properties, but, bundled as a group you can try to find a portfolio lender for better financing. Is the owner offering Seller financing? If not why are you putting it in your analysis? Are they 3 separate properties? What are comps selling for if they are separate properties? What would be the ARV for each? What is the breakdown for the rents and projected Market rent rates? What condition are they in? Estimate of Rehab costs? This directly affects your offer price. I realize you haven’t seen the properties yet.

Hi @John Leavelle The 100k is theoretical. I based that on what the numbers show me the value is as a multifamily purchase. As I understand it, the formula is NOI/Cap rate. So ($2525-$1763*12=$9,144) / .09= $101,600 I assumed I had to be wrong, because with the value that low, listing it as a multifamily purchase doesn’t make sense, vs just selling them off individually. If you’re saying my cost numbers all make sense, then this as I suspected, is a pretty bad deal.

@Kurt Hines I would think all regions have pest, either ants, spiders or those darn German cockroachs lol. Most people do bi annaunal sprays. Once in the spring and once in the fall, it also gives the tenants a peace of mind, and the perception that the owners care about the place.

Multi-Family and Apartment Investing

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Am I getting my small MF costs right?

Kurt Hines

Investor · MI · Member since 2016 · 102 posts · 44 votes

Hi All. I'm looking at a couple multifamily properties in Northern Michigan (local to me). They don't seem like good buys, but I'm concerned that I may just have my expense numbers wrong. Below is one of them. Am I missing anything, or including something I shouldn't? Or including things in NOI that I shouldn't? I have one rental, but this would be my first multifamily

I'm doing a lot of numbers on these as practice, and plan on touring it next week. Even if nothing comes of it, it is a good learning experience!

6 total units (3 duplexes, Four 2-bedrooms and Two 1-bedrooms)

Asking Price 196k (Has been on the market for 14 months. I think they got the price by adding the potential retail price of each duplex, not calculating NOI against CAP Rates for the area (8-9%))

Current Gross Rents: $2,525, I think this could be stabilized to about $3,100.

Thanks!

Monthly Expenses
Cost Item	Cost	Estimate or Actual?
Included in NOI
Prop Taxes	$500	Actual, seems high, maybe could be lowered
Insurance	$238	Actual, number from Ins. Agent for Replacement cost, could insure at ACV
Water/Sewer	$170	Actual, a couple residents have Washers, would charge them for this.
Trash	$19	Actual
Electric	$0	Estimate, Tenants pay
Gas (for Heat)	$0	Estimate, Tenants pay
Landscape / Snow	$125	Estimate, large shared parking lot, lots of grass, lots of snow
Accounting / Tax	$50	Estimate
Legal	$30	Estimate
Vacancy/Loss 10%	$253	Estimate, number bank appraiser uses
Repairs & Maintenance 5%	$126	Estimate, appears to be very little deferred maintence, would be confirmed
Management 10%	$253	Estimate, would self manage, but to put against NOI
Total NOI Costs	$1,763
................................................
Not included in NOI
Financing	$606	Assuming an offer of 100k, 75% bank financing, 20% seller financing
CAPEX	$125	Estimate at $250/door/year, would be confirmed
Total Extra Costs	$731
................................................
Total Monthly Expenses	$2,495

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Am I getting my small MF costs right?

Am I getting my small MF costs right?

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