Opinions for this Multifamily reposition deal

[Nicholas Fazio]

Hey guys and gals, this is a example of a deal near me that I would appreciate your opinion on; checking to see if I am on the right track or not-

This Garden Style 1980 built apartment complex is 50u, listed @$1595000

($31,900/u)

Listed NOI 158109

Rents not listed

{Estimated Cap 10}

Listed vacancy: 60%

16u are single, 34 dble beds

Plan

20% down ($319000) or 30% ($478000)

Raise $500k-600k total to allow add’l costs/repair- plan might be to Reno/update< 20 units, landscaping, paint.

For 10% cocr will need to net $32000- 45,000yr, actual 47000-62k per year

With Market rent @$680 (average)and at 90% vacancy for 50u, roughly max GSI $367000

Could Expect 10-19% cocr or >

Strategy- Stabilize/Reposition then Cash out refi

Thanks!

[Michael Ealy]

Originally posted by @Nicholas Fazio:

Hey guys and gals, this is a example of a deal near me that I would appreciate your opinion on; checking to see if I am on the right track or not-

This Garden Style 1980 built apartment complex is 50u, listed @$1595000

($31,900/u)

Listed NOI 158109

Rents not listed

{Estimated Cap 10}

Listed vacancy: 60%

16u are single, 34 dble beds

Plan

20% down ($319000) or 30% ($478000)

Raise $500k-600k total to allow add’l costs/repair- plan might be to Reno/update< 20 units, landscaping, paint.

For 10% cocr will need to net $32000- 45,000yr, actual 47000-62k per year

With Market rent @$680 (average)and at 90% vacancy for 50u, roughly max GSI $367000

Could Expect 10-19% cocr or >

Strategy- Stabilize/Reposition then Cash out refi

Thanks!

Nicholas,

To be honest with you, this deal is TOO RISKY for a newbie investor.

Repositioning almost always takes twice as long to finish and twice as much money to complete.

Having said that, I don't necessarily agree that you have to buy everything based on actuals. There are deals where you can't really do that, given where the market is at. In fact, I made a lot of money buying a property above their actual NOI.

I posted this on BP last week, actually:

https://www.biggerpockets.com/forums/432/topics/763669-investing-rules-and-times-you-violated-them-and-made-money

I would say, as your first deal, maybe start out with something smaller (20 units) and one with less headaches. Then buy it at a price that you will have positive cashflow on day 1.

Maybe a property that is 90%+ occupied but the rents are below market and the expenses are a tad above normal. Here's a hypothetical example:

20 units, rents: $600/unit (market rents: $700/unit)

90% occupancy

expenses are 60% of gross rents

And rents can be increased to market by improving the curb appeal and the interior finishes, say you spend about $5,000/unit or $100,000 in renovation

Then, if you can decrease the expenses down to about 50% while increasing the rents as the units turnover, then you will have a profitable, low risk deal.