Would you buy this deal

Question

We started our first direct mail campaign for multifamily properties (5+ units) this month. So far we have one valid lead. However we think the seller is asking too much, even though it is a stabilized asset in a good area. Would you buy this deal?

Asking price: $1 million

8 3b1b apartments in 2 buildings + 1 office / in law suite + 3 storage units built in the 70’s in a good school district in Lehigh County, Pennsylvania (approximately 20 miles from the Allentown-Bethlehem-Easton MSA)

Income: $120,480

(current rents $8640 / month: 8 3b1b apartments for $1030 / month each, 1 storage unit for $400 /month;

1 additional office / in law suite 1b1b can be rented for $600 / month and 2 additional storage units can be rented for $400 / month each; these are currently used by owner)

Expenses: $50,107

(Electricity: $1,440, water and sewer: $6,400, taxes: $11,943, insurance: $2,400, garbage: $1,560, vacancy: $6,024, capex: $6024, maintenance, $6,024, management: $8,292)

NOI: $70,373

Cash on cash return: 6.0%

Cap rate at asking: 7.0%

BP rental property analysis:

https://www.biggerpockets.com/buy_and_hold_results...

Rents for the 3b1b can be increased to $1,200 based on Rentometer report. Additional amenities include a workout area in the basement with some equipment (weights, treadmill, etc.), on site laundry and parking. Additional income can be generated from coin operated laundry and vending machines.

Thank you for your input!

Bjorn Ahlblad · Answer

@Stephen Kunen Would I buy? I'd be willing to look more closely based on the gross numbers; but I'd want actuals. The taxes are based on a prior valuation and will increase by quite a bit based on the final sale price. Insurance is either way low or under insured. I suspect PM fees will be a lot more-in short you need better numbers. Having said all that if you can get the price down it might be a deal, but you will need a rent roll, financials, inspection etc to be more informed. All the best!

Kim Meredith Hampton · Answer

Hi Stephen,

I like the numbers, but my biggest concern is the maintenance number for all the above listed units, seems very low. Have the units been remodeled/upgraded, and I would be Leary of the number on the storage unless you feel like these are acceptable for the area or tenants use? You would also need to factor in lawn care and/or snow removal.

If you submit an LOI, I would then have them inspected to really give you an idea about electrical, plumbing, roofs etc... These items can be a real killer on your cash flow

Marc Rutzen · Answer

Hey Stephen - Happy to run it through Enodo for you and see how much you can push the rents based on the specific amenities, unit sizes, and location attributes surrounding the asset.

We've found that the rent upside can be understated when you're comparing to assets within a radial boundary - our algorithm will identify the most statistically relevant comps in your market and use them to generate a more accurate rent survey. It's free to try out the tool on our site, so don't hesitate to search the property and see what the it says about market rent and expenses. Good luck on the deal!

Would you buy this deal

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