Hello! Want some opinions on my first large deal that I am thinking of doing (I have a couple duplexes that have turned out great but this will be my first apartment complex and I want second opinions and thoughts). It seems like these posts always lack in details so I will try to give the most information possible:
Sale Price: $575k
Current rent: $6825 (this is topped out, no room to increase)
Loan terms: 20% down, 20 year 5 year balloon 5.75% interests
Vacancy: Using 5%
Property is C class and in good condition (new furnances, roof, etc) No common areas. Tenants pay all utilities. Location is in the midwest. Neighborhood is next to major employers, no crime.
Is there something I am missing? What do you guys think? Good, meh, run away?
are these numbers Annual or Monthly break down? or are they mixed and matched?
@Jeremy F. How many units? In what year were they built? Is your current rent your monthly scheduled income? it sounds like there are about 10 units and that is your monthly scheduled. Taxes seem low for annual but high for monthly.
Jeremy, it would be very helpful to know how many doors, and all in one building? That looks like a decent opportunity just based on those numbers-are you sure of their accuracy, or just what you got from agent/seller? How long has this property been on the market? Be sure and get a professional inspection, that may cost 1000 dollars but well worth it. Capex/mtce allowance is too low; needs to include landscaping, snow removal, garbage etc. I generally do not combine Capex and maintenance. I use actuals for maintenance and an allowance for capex. Get actual financials from the seller to be sure of your numbers. If you do not have an accountant now is a good time to get one-a tax guy/gal who knows REI. Let them review the financials and show you what they represent if you are unfamiliar. All the best!
12 doors, 3 buildings.
Taxes, insurance, and maintenance are yearly. Rent is monthly. These numbers are based on yearly averages they provided and but they line up with what I have seen on similar properties in this area. I do not have numbers for capex, I will reach out to my PM for the lawn/snow maintenance but I am guessing that would just be around 4k a year. Not sure what to use for capex on something like this.
Updated almost 3 years ago
Building was built in 1977
Ok this and 50 cents will get you a cup of coffee so take it for what it's worth. I have not done any deals yet but have been looking a lot at Multi-Family and crunching a lot of numbers.
In general, I have seen some advice to go with 50% as your NOI after you take your gross - your Vacancy and to use 10% vacancy as a rule of thumb. Your numbers are just a bit different so wanted to see what I came up with to see how different they are.
If I read this right
Gross Income Reported is $81900
GIR-Vac @ 5% is $77805
From what I can calculate that works out to a 9.71% cap rate
Which puts the est Property Value at $541,867
That's not too far off which is good.
With the 50% method and using 10% Vacancy Rate, it drops the value down to $357,862
|Gross Income Reported||$ 81,900|
|GIR -VAC||$ 73,710|
|Listed Cap %||9.71|
|Est Prop Value||$ 357,862|
Now again my math may be off but I think that you should be somewhere between those 2 numbers on price and of course that will depend on a lot of other factors and how conservative or aggressive you want to be with your numbers.
@James Dickens I appreciate your post. Seems like I am at least in the ball park with my numbers.
@James Dickens I am just getting into multi-family do you have any recommendations on educating myself?
@Jeff Kehl I was talking about his first number at $541k. Was going to offer 550k but he isnt budging from list price. 5% vacancy and less is where I am sitting at with my current properties, have a hard time seeing 10% vacancy for this place.
@Jeff Kehl I had 2 numbers there like @Jeremy F. pointed out and it was as much a study for me in the numbers than anything. To some extent I'm not 100% sure of my numbers so figured I would toss them out there and see what discussions would be had. I think he will know whats best as it is his deal and he knows the area and the numbers and it sounds like he has a good handle on all of it.
One thing, and again as Jeremy pointed out 50% in a lot of cases will be high for expenses and if you have solid numbers to go by you are better off using those. The 50% is more for quick analysis or so it is being said by some of the Youtube/buy my book crowd. I find though that in most of the cases that I have looked at (Looking at listing sites like Loopnet and Zillow) if you use the 50% NOI to calculate the asking price you will be pretty far off the asking price number. Once I start looking at actual broker deals I'm sure the numbers will fall into place a bit better.
@Debra Chepkemoi From one newbie to another I would say the best thing to do once you have decided on Muli-Family is to look for people talking mainly about that subject. There is a lot of clutter out there. Look here on BP for Blog Posts from the Muli-Family guys and follow them so you know when they post new content. A couple of books I would recommend to start with are the 2 from Ken McElroy - The ABC's of Real Estate Investing and then the Advanced Guide to Real Estate Investing. Those both helped me focus a bit more on what content and information I needed to look for. Currently, I am reading @Matt Faircloth book which you can get here on BP which is called Raising Private Capital. I would, however, say it's best to understand some of the basics before jumping into this. I can tell I am going to have to go through it a few times myself.
But the original cup of coffee disclaimer still stands and if anyone has any better or more seasoned advice please feel free to give it.