Need help to analyze two apartment deals

10 Replies

Hi BP community,

    I am a new investor in Southeast Michigan. I am looking to invest in an apartment building of 5-15 units. I found 2 deals and I would appreciate it very much if someone could help me analyze the deals. 

    One is at 625 Owen St, Saginaw, MI, 48607. It has 2 studios and 5 one bed rented for 500 and 550 perspectively per month. The broker said the occupancy rate is about 90% all the time because it is very close to a hospital and most of their renters are hospital residents. The asking price is 270K. It seems like a pretty good deal, but that location in Saginaw seems a little bit rough. I also asked a local investor in Saginaw. He said he thinks the building is overpriced. I did the math and the cash flow seems good.

    The other is at 176 W Columbia Ave, Belleville MI, 48111. It has 8 one bed units. The asking pricing is 475K. The rent is between 550 - 675 per month. It is a much better neighborhood. 

    I am just not sure if the asking price of these two deals make sense or not. Should I offer lower? 

    Also if someone in Southeast Michigan is interested in these two deals, please don't hesitate to reach out to me. I am looking forward to partnering with you.

    Thank you in advance. 

Well I think generally the first question would be, what are the cap rates for the area? Class A,B, or C property? What is the NOI? Did you run those rents through a third party system to see if they are at market? Above or below?

Some things you may want to consider:  does the rent on these units include utilities? If so, expect to pay an additional 200 a month or more for water, 300 for electric, and a LOT for gas over our long cold Michigan winters. That doesn't mean it's not a good investment, but something to consider. As far as Saginaw versus Belleville, Saginaw is a very landlord-friendly city and about 60 percent of the population rents, so there is no shortage of prospective tenants. People are always looking for units in the 500 to 550 range, so you're right on track with that.   However, what will you do when there's a problem with one of your units and you live an hour and a half away? What about lawn care in summer and snow plowing in winter?  Unless you're willing to spend a lot of time driving back and forth to Saginaw (and you may be- I used to drive from Brownstown to my Saginaw apartments for years before I moved a little closer. It's not a deal killer, but something to give serious thought) or you're willing to shell out a lot of money for someone else to do all the maintenance for you, you might be better off with something closer to where you live.   A good option might be single family properties in Saginaw - they pay their own utilities and maintain their own lawns/snow removal, so it saves you time and money, and they're easier to sell if the need arises.  

@John Ellis The water and heat is paid by the landlord for both apartment. The tenants pay the electricity. 

I agree with you that it’ll be a hassle to drive all the up to Saginaw to do the maintenance and I did not find any property management company there. Maybe you have someone you can refer to? Thank you very much! 

@Tianyun Zhang if you have no experience buying real estate I would suggest stopping and not buying. Don’t be a BP warrior and just think because you have access to a forum that you know what you are doing. Don’t listen to anything the broker is telling you.

First what is the price per unit and is it at least 1.5% rent to value ratio.

Have you seen the actual P&L.

Have you verified rent rolls?

No, this is not normal. Tell the broker you cannot make a fair price valuation without the historicals. Ask for a T-12 and you should be good information-wise. 

Tell the broker your price range? Not in an offer... just verbally/via email or something to keep him/her on the hook. 

Worst case, give them a LOI (letter of intent).

Sorry, I don't know any property managers in Saginaw - I manage my own properties. I highly recommend managing them yourself, at least the bill paying, tenant screening, rent collecting aspects, and finding reliable plumbers and heating/cooling people- these are the services you'll use the most.  However, the biggest maintenance expense, by far, is lawn care and snow removal.  

Another thing to check when running your numbers is the POTENTIAL taxes on the property. I just looked online at the BS&A site for Belleville to look at the property. If I was looking at the correct property, the current SEV is $142,300, or a market value of about $284,600. If you buy at $475K and the taxes adjust up close to an SEV of $237.5K (50% of sale price) your taxes will double from what they currently are on the property. Taxable value is currently capped and at $119,508, taxes could go from $7600/yr to $15k, or almost $1000/unit per year increase. Make sure to figure this when running the numbers.

Also, don’t forget Belleville has rental inspections, so there’s an ongoing cost there, as well.

Agree 100% they need to give you at least T-12 (last 24-36 mo info is better) for you to be able to get an offer.