Need help analyzing this deal on multi-family home!

18 Replies

I found what I think is a GREAT deal in Queens, NY. It is an old, abandoned synagogue with a 4-car garage, small backyard, and rooftop deck. It is about 4500 sq ft. There are also 2/3 balconies attached to each floor/unit. The finished basement and 1st floor are open spaces right now with the potential to create 1-bedroom units. The third floor is 3-bed/2 full baths and the fourth floor is 2 bed/2 full bath. This area has a high demand for rentals. The 2-bed would be able to rent for about $2800 and the 1-beds can rent for $1800-$2000. Parking spaces are in high demand and can be rented for $250/month. Property needs a ton of work and also lacks a certificate of occupancy. I spoke to a contractor who estimates reno at 100-120K per unit. Asking price is 1.3mill which is way overpriced. Property is unlivable in its current state. There are 2-family homes on the same block on the market for 1.1-1.3 mill. There are single family homes, 5bed/3baths in the area that sold for 1.65mill in December. Seller is motivated! I’m thinking of offering 800K. Plus the 480K for rehab, I’m looking at spending about 1.3mill total on the property, with the ARV at approximately 1.7mill. What do you think? Is this a good deal? Thank you for your time! Melissa

@Melissa Mendoza its very hard to comment without seeing the building and knowing more information.

Few questions to ask you:

Anything structurally wrong with the building?

would the city allow to convert the basement to FEW 1 bed units?

whats the demand for 1 bedroom apartments in the area?

how accurate is the rehab cost? did it include separating the utilities? city permits etc?

what would be the projected income or NOI after rehab?

are you able to found the project yourself? probably with at list 50% cash? 

Lastly and more important, did you undertake a project like that before?

Please Advise, Thanks !!!

@Hadar Orkibi Thanks for getting back to me! This would actually be my first project! The contractor I spoke to stated his company has worked on several developments of this size. The plan was to get the property under contract then going in with the contractor physically to get a better estimate. I am not qualified to make any type of foundation assessment but from what I’ve researched and seen in other properties, the structure seems pretty sound. I worked as a rental agent in the area and I know that finding quality renters is no issue. 1-bed apts are in high demand. The contractor asked if there would be a need for electrical/plumbing work and I said yes so he included this in the estimate. I haven’t factored in city permit costs. I would be living in one unit, so renting out the other 3 plus parking and storage would come to about $90,600 gross annual income. Property taxes are $5500/year. I haven’t calculated other expenses past that. I am planning to use a private lender to fund the project in cash. BRRR method basically. Let me know what other information you need!

Again, it is impossible to comment specifically with the details you provided. 

BUT

Over all If your rent roll. gross rent would be 90k and you take say 50% out for expenses. your net income before debt servicing would be say 40k.

If your COST been $1.3 million your cap rate is ? yes 3%.

why would you get involved for that type of returns???

 The money is going to cost you 6% by the time you refi.  you will be loosing money every day. 

I take it that you are planing to do a 4 units in the building?

What would each unit be worth individually across the 4 plex?

This is straight up a pretty ridiculous deal. 

To start off, 120K per unit in reno cost? That's way too much unless you basically re-build the whole thing.

Second, even with a basement unit, the cap is way too low for 1.3M, especially you are putting 480K cash in reno. 

Third, i doubt you be able to get it for 800K when the asking is 1.3M ,usually for this type of deal, developer come in, buy a few blocks, bolldoze everything and build an apartment building from scratch. 

@Lloyd Lau Should I get a second opinion for the reno? He gave me the estimate over the phone without seeing the property. There’s basically nothing there so I’d have to put in the kitchens and bathrooms, maybe that’s why the estimate was so high? Also reno in NY is generally expensive. But for my 3-bed/2-bath I paid about 55K for an entire gut. This was about 5 years ago
Originally posted by @Melissa Mendoza :
@Lloyd Lau Should I get a second opinion for the reno? He gave me the estimate over the phone without seeing the property. There’s basically nothing there so I’d have to put in the kitchens and bathrooms, maybe that’s why the estimate was so high? Also reno in NY is generally expensive. But for my 3-bed/2-bath I paid about 55K for an entire gut. This was about 5 years ago

 It's not only that, but whether what's your long term plan here. If your plan is to buy it, fix it, and sell it when it's done, then you need to get your reno cost way way cheaper than it is right now.

If you are using hard money lender, then the rental income is not going to make sense financially, you would be much better off investment elsewhere

Originally posted by @Melissa Mendoza :
@Lloyd Lau I wasn’t planning on selling it, I was planning on living in it so the income was based off 3 units rather than 4

 In that case, i think it's more important to know if there is any structure damage and etc that needed to be fixed. Any plumbing, wiring issues. 

Originally posted by @Melissa Mendoza :
@Lloyd Lau Assuming there are no structural issues and the 120K per unit covered electric and plumbing, would the deal be worth it?

I am still going to say no. 

Obviously if you decide to live in it, it kind of stopped being an investment, but rather an expensive house hack to some extent. 

The thing is how are you going to finance the Reno? hard money lender and 6-7% a year money cost is not the right answer. 

We need to know bit more on how you plan to finance the whole thing before we can give you something with more substance 

So if you combine all the apartment values would the ARV be 1.7mil?

Is that how you establish the ARV?

That’s how is will be appraised by the bank if you have 4 units. 

look @Melissa Mendoza  you saw a distress building and trying to see if there is an opportunity there.

Considering the returns you are talking about, the size and cost of the project And the fact that you have no experience in structural/ restoration projects I think you need to fined another deal. 

If you are just starting out, my opinion is don’t go in to something that it’s above your head.

You could potentially loose all yours and your private invest money.

NEXT!