1st Out of State Deal - Help With the Numbers

Multi-Family and Apartment Investing
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1st Out of State Deal - Help With the Numbers

Account Closed
Real Estate Professional · Wayne, NJ · Member since 2016 · 12 posts · 0 votes

Hey everyone, 

So I have been eyeing the opportunity to buy an out of state deal for a while, mainly North Carolina. The market I live in is North Jersey and I currently have a 6 unit deal under contract here as well but with pricing being so high, another purchase and I have no more buying power left until I refinance my capital out after renovating and raising the rents. I came across an off market deal this past week and am thinking about pulling the trigger. I have been researching the market extensively and speaking with multiple property managers (one of which I will eventually use) to get a feel for the area. The neighborhood is okay, not the greatest in the world but not a war zone either but has a steadily growing job market. I think this is a good deal but since it is my first one out of state I just wanted to see what the community thought on my underwriting... Please feel free to share all thoughts and tell me where you think the numbers are slacking if they are, I'd rather have hurt feelings than a hurt wallet. 

Units: 6 (All 2 bed 1 bath)

Purchase Price: $170,000 

Price Per Unit: $28,333

Gross Income: $28,800

Vacancy: $3,000

Management: $2,580

Utilities: Tenants pays heat, water, electric. 

Insurance: $3,600

Maintenance: $3,600

Taxes: $1,524

NOI: $14,496

Cap Rate: 8.52%

From speaking with the property managers with moderate upgrades I should be able to get $500-525/month so upon turnover that is an option but for now what does everyone think about the numbers?

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Account Closed
Investor · Jacksonville, FL · Member since 2014 · 186 posts · 34 votes
8y

Alot of good advice has already been given, but having bought a property very similar to this in Virginia I would echo all of it again.  At that rent level, you are going to deal with some turnover, probably more than you'd expect.  Even if turnover is good, you are going to deal with some vacancy as you get the units prettied up for the higher rent.  Also get a better idea of what "moderate upgrades" are and figure those into your first-year expenses.  Moderate might mean $500 to you, or $5000 to the property manager.  

As noted above check on the exact PM costs and model those into your numbers.  A few hundred bucks as a placement fee might devastate your returns.  

No financing was mentioned so I'm assuming this is an all cash deal. Be mindful of exit strategies or eventual cashout refi. If you can get rents to $490 with 70% LTV, it looks good otherwise, and you'd be able to sell at a nice profit.

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  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    8y

    @Account Closed, this is not my area of expertise so take what I say with a grain of salt.

    First I think your vacancy rate allowance is way too low.  It should be at least $3500 or 12%.  If you have the actual numbers of this property or can say what the rate is for similar buildings use that.  Apartments tend to have higher vacancy that SFRs.

    Second your maintenance seems quite low to me.  I would have at least 15% for repairs and cap ex.  A lot will depend on how well the property has been maintained and deferred maintenance.  Maybe $4,400 per year.  Don't use their figure it will be wrong.

    I cannot tell if the property is one long one or a 2 level etc.  I see nothing for common area utilities.  Any hallways with light, and lawns that you water or mow?  Any snow removal of sidewalks?  Any parking lot to maintain?  Etc.  I see no figures for that.


    Next you need to really know the rents in your area.  Even if the management company is accurate, how much dollar cost to upgrade the apartments?  How long will they be empty for upgrades causing lost rent?  How will they compare to other units in your area?

    I also think your property management figure is low.  Many C or lower properties are 10% management fees.  I have one that is 12%.  Do they charge half or even all of first months rent for new tenant placement?

    Finally how can you trust the numbers they use?  Are they from the owner or property manager?  Are all of the tenants current?  Have you looked at all of the leases?  Sometimes they forget to tell you there are tenants 6 months behind, or that they are only paying $300 per month because their gas heater is broken.  Etc.  Have you had the property inspected for bad stuff like termites or wiring or plumbing issues?

    Just my thoughts.  Sorry to be so negative.

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  • Casity Kao
    Realtor · Grand Rapids, MI · Member since 2016 · 174 posts · 122 votes
    8y

    @Account Closed Is your PM company not charging for first months rent on turnover and just flat 10%?  

    Also what repairs area needed in near future? Capex could be low based on condition.

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  • Account Closed
    OP
    Real Estate Professional · Wayne, NJ · Member since 2016 · 12 posts · 0 votes
    8y

    @Jerry W. No, thank you for the feedback this is what I am looking for. A NYC metro market is way different than a small city NC market and I need all the opinions as possible. 

    Vacancy is usually less than 10% in the NYC metro so while I did adjust up slightly but I'll take your advice for this and the other expenses and go with the higher number. The property is in pretty good shape, the roof was done 6 years ago and all mechanicals within the last 5. Also it is one long building so no common area maintenance.

    @Casity Kao They charge 10% with a $100 re leasing fee. The upgrades would be new painting, vanities and cabinets.

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  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    8y

    Management fee looks low and you don't show replacement reserve. I would spay maintenance should be 15% and Replacement reserve 5%. Also, are there any city licensing and inspection fees and travel expenses? NOI looks closer to $12k

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  • Michael Le
    Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    $400/month rent? Man, that's low. I would increase maintenance percentage based on just that alone as your expense costs for paint, labor, etc will be the same as units with $800 rents. Also, tenants paying that amount usually bang up your property much more. And they are also more likely to skip out so increase your vacancies to account for bad debt/delinquencies.

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  • Account Closed
    Investor · Jacksonville, FL · Member since 2014 · 186 posts · 34 votes
    8y

    Alot of good advice has already been given, but having bought a property very similar to this in Virginia I would echo all of it again.  At that rent level, you are going to deal with some turnover, probably more than you'd expect.  Even if turnover is good, you are going to deal with some vacancy as you get the units prettied up for the higher rent.  Also get a better idea of what "moderate upgrades" are and figure those into your first-year expenses.  Moderate might mean $500 to you, or $5000 to the property manager.  

    As noted above check on the exact PM costs and model those into your numbers.  A few hundred bucks as a placement fee might devastate your returns.  

    No financing was mentioned so I'm assuming this is an all cash deal. Be mindful of exit strategies or eventual cashout refi. If you can get rents to $490 with 70% LTV, it looks good otherwise, and you'd be able to sell at a nice profit.

    2Reply
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