Multifamily Deal Analysis - Would You Buy?

Question

I’m looking at this deal: would you buy it?

16 Unit Class C Apartment Complex

-Purchase Price around $600k in Texas

-Located in a decent city but not the best area of town

-Rents are below market by $100/unit but may need slight flooring upgrades to get there

-All units full

-no known deferred maintenance

-NOI if I self-manage = $70,000

Cap Rate around 12%...could be 15% if I get the raised rents over time.

Any thoughts? And is it practical to try and manage this myself? I have other rental houses so I am used to dealing with tenants.

Thanks!

Erik W. · Answer

@Ryan Pettit, not enough data.  I don't know how you're calculating your NOI and if the numbers you're including are reasonableness or pie-in-the-sky.  Also, I don't know if you plan on paying yourself for DIY management or if you plan on working for free?  Also: CapEx reserves?  Vacancy?

IF (big "IF" is not a typo) all your numbers are fully and accurately rolled up into NOI, then we still need to know about your debt coverage.

CapRate 12-15% sounds impressive, but we'll see if the numbers bear it out.

Also, how much is it really worth, today, as it sits?

Free cash flow?

Is the area improving, declining or coasting?

More data, please.

Greg Dickerson · Answer

You definitely need to visit the property and area in general, do a crime report search, check rents in the area and reviews online of the property as well as comparable properties. You should also talk to property managers in the area as well to understand what your dealing with and what it takes to successfully operate a C class property in that area.

Bjorn Ahlblad · Answer

@Ryan Pettit This could be a good find but; are you accustomed to dealing with a typical C class tenant? In order to get 70k NOI you need 140k gross rents. What is the age and condition of the building? All 16 units under one roof?

Multifamily Deal Analysis - Would You Buy?

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