Large Multi Unit Formula's

[Wayne Newland]

I am experienced in single family homes and 2-3 units very well. I recently had the opportunity to bid on a 69 unit complex that showed to net 74k after all expenses paid. These units were well maintained and in great shape. Many upgrades and 92% rented with a full time maintenance man and manager on site. My question is how most of you would value this? It had 12 studio units renting for 439 each, 49 1 beds renting for 539 each and 8 2bed units for 639 each. That's potentially over 36k cash flow monthly. The place sold for 1,850,000, did the buyer get a deal?

[Sam Grooms]

A couple of points/thoughts/questions/comments:

• Revenue/income is not the same as cash flow. It's only one side of cash flow. 
• I'm not sure how a 69 unit property with such low rents can afford two full time staff. I'm guessing they were being subsidized somehow, either from non-revenue units or the owner was also the manager. If so, this would eat into your cash flow. 
• Paying $27K/door for $533 rents seems like a great ratio. 
• Assuming their numbers are right (big assumption), on the surface, the deal seems to make sense. $74K of cash flow for a $462K investment (assuming 25% down), gives you cash on cash of 16%. But would you want to own this asset? You could be dealing with problem tenants at those rents. You could have a lot of economic loss. Are the rents enough to support future big capital expenditures, like roofs, boilers, chillers, etc.?

Personally, I won't buy property with such suppressed rents (unless I can significantly improve them).