Buying an Apartment

[Darius Howell]

Hi everyone, quick question. I have a seller that believe his property apartment complex in gastonia NC is worth around $400k because "my wife works at the bank and she deals with multi million dollar company everyday." Which doesn't mean anything but I digress. However he think the 6%-7% cap rate is reasonable even though that particular property need a good bit of updating in cosmetic. Also in downtown Charlotte that's the return your looking at is 8% or a little lower for class A type neighborhood and property with all the amenities most luxury apartments/complexs gastonia especially not in the area and condition these units are in.

He gross is around $56-57k per year. The NOI is $35k per year. He only has rent roll and no Trailing 12. Now the only thing I know to do is to let time go by and let him think about it instead of insulting him or ridiculing him to see my point of view and how the cap rate is off 7-8 percent at least for me to buy it. I have sent it many investor in the area which majority has given the same feedback. The location of the property isn't in the best part of town which mean you can't increase rent to market rent at least for 2-3 years.

All10 units are rented out. However the property currently have 2 tenants pay $500, 4 tenants pay $475, and last 4 teants pay $450. Even after completely fixing them up; the highest they can rent out for is $650-$700. Which Avg rent in a 2 miles radius for a 2/1.5 is $800. Any advice on how to approach the seller from here when he isnt flexible on price nor terms.

[Luke Sass]

@Darius Howell do you have any more info on the property ? The biggest question that comes to mind is why is he selling it? If you know his why there’s almost always a solution? Did you find him or is the property listed?

-is he managing it himself? ( sell him on the idea of taking a problem off his hands )

-does he own it outright ? ( sell him on a contract and the benefits if taking the income from the sale over several years )

-if he has a loan that might explain his reluctance to wiggle on price, or you can try and time his ballon payment ( offer to buy it at or around the time his ballon payment comes due)

-what’s the current rental license look like? Are there code/ life safety violations? ( I’ve had good luck playing that card showing the owner the cost get the complex in compliance or buying contingent on it being compliant)

-expenses seem a little light if it really is a somewhat run down property in a bad area ( depending on your investment strategy these properties tend provide better cash flow to somewhat compensate for the lack in appreciation)

-are tenants paying utilities?

-when was it built?

-what’s the unit mix?

-what type of leases are in place?