Is this a good deal?

11 Replies

I came across this and it strikes me as pretty good.  Vacancies are low in the area and these rents are low for the area.  What am I missing here that this would not make sense?

Updated 6 months ago

Property listed around $575k

I suspect rents could come up about $100/unit/month, if not more, based on what I'm seeing around.  

Updated 6 months ago

looks like taxes are more like $3600 and from looking at the pictures, there's almost certainly some deferred maintenance.

Your expenses are below 30% which is too low. Evaluate the property at 50-55% expenses and see if the returns match your investment goals. Right now you have $5000 budgeted for maintenance and you don't have a capex reserve budgeted. Apartment turns, new carpet, new paint, replace an appliance here and there, new roof, windows, driveway, etc. That's going to cost you more than $5000/year. I would have AT LEAST 5% for R&M and 5% for capex reserves.

Taxes at $1300? Is that an annual figure?

How will this be financed? Cash? I doin not see any financing figures....

Also, will this be self-managed? I would think there would be re-rent fees and such unless there is an on-site manager?

I do think too that Maintenance is estimated too low.

Originally posted by @Jan Halasz :

Taxes at $1300? Is that an annual figure?

How will this be financed? Cash? I doin not see any financing figures....

Also, will this be self-managed? I would think there would be re-rent fees and such unless there is an on-site manager?

I do think too that Maintenance is estimated too low.

I looked up the taxes records and it looks like that number would be more like $3600.  I wasn't planning to self-manage, but it's a moot point as I talked to the broker today and the property went under contract last Thursday. 

Originally posted by @Graham Lutz :

I looked up the taxes records and it looks like that number would be more like $3600.  I wasn't planning to self-manage, but it's a moot point as I talked to the broker today and the property went under contract last Thursday. 

 Oh well...next. I do think though that it was great that you posted this. It gives us noobs a different perspective; the more experienced chime in, giving clues of potential pitfalls. 

Originally posted by @Jan Halasz :
Originally posted by @Graham Lutz:

I looked up the taxes records and it looks like that number would be more like $3600.  I wasn't planning to self-manage, but it's a moot point as I talked to the broker today and the property went under contract last Thursday. 

 Oh well...next. I do think though that it was great that you posted this. It gives us noobs a different perspective; the more experienced chime in, giving clues of potential pitfalls. 

 Yeah, my whole goal here is to get the experienced investors talking, then just sit back and listen!

@Graham Lutz

Hi Graham

unit mix is not very good. There are too many deficiencies, which will lead to higher turnover. The expenses are very low. Ask a community banker what expenses would be to run the property.

That number should be around 50% of income in smaller properties. As yo scale and become larger, a per unit cost is more exact. It costs us between 4000-4500 per unit in expenses to run our properties in our market, depending on the asset class

Gino

Originally posted by @Gino Barbaro :

Hi Graham

unit mix is not very good. There are too many deficiencies, which will lead to higher turnover. The expenses are very low. Ask a community banker what expenses would be to run the property.

That number should be around 50% of income in smaller properties. As yo scale and become larger, a per unit cost is more exact. It costs us between 4000-4500 per unit in expenses to run our properties in our market, depending on the asset class

Gino

 Thanks Gino!  Could you elaborate on what you mean by unit mix not being good and why you'd like to see it different?  Are you saying you'd rather see a more even mix of studio, 1 bed, and 2 bed units?

@Graham Lutz

The ideal unit mix is 2 2 beds for every 1 1 bed.  Studio/efficiency units are okay if you have a couple, but the tenants are more transient and will turnover, which leads to higher expenses. It depends what market you are in. A few years ago the one  beds did not perform as well for us. But now, with university, millennial and baby boomers, demand has gone up.  Two beds are the easiest to rent and generate more per unit in income than one beds.

Gino

Originally posted by @Gino Barbaro :

@Graham Lutz

The ideal unit mix is 2 2 beds for every 1 1 bed.  Studio/efficiency units are okay if you have a couple, but the tenants are more transient and will turnover, which leads to higher expenses. It depends what market you are in. A few years ago the one  beds did not perform as well for us. But now, with university, millennial and baby boomers, demand has gone up.  Two beds are the easiest to rent and generate more per unit in income than one beds.

Gino

 Makes perfect sense.  Do you see any significant difference in expenses per unit, other than turnover, based on number of bedrooms? 

@Graham Lutz

The mgmt fee will be higher due to more income, the turns will be more due to more square footage, more floors, etc.

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