12-unit deal (stabilized)

9 Replies

Hey all, 

Need some deal advice and some creativity. Have a 12-unit that I'm wanting to offer on. This deal is already stabilized, no forced appreciation opportunities here, which I am OK with. It seems like a solid deal I can just buy and hold.

Asking 810,000

100% leased, renovated in 2018, strong location with tenants who pay on time. 

Income 110,000

Expenses ~~40,000 (about 40%)

Debt Service 36,000

Cash Flow roughly 35,000

Deal is off market and has multiple offers. What are some creative ways I can win this deal without overpaying?

@Khizar Hanif looks good so far; but it looks like the broker's pro forma to me. Those expenses may be understated, and you need to walk the units, inspect the leases, rent roll and paperwork etc before you think too much about winning the deal. 

Make sure it is the deal you think it is. There are ways to make your offer stand out but scrutinize the deal first. For now, you could offer full list, or whatever, with an inspection contingency that gets you in the door, and haggle later when the facts are out in the open. All the best!


Originally posted by @Khizar Hanif :

Hey all, 

Need some deal advice and some creativity. Have a 12-unit that I'm wanting to offer on. This deal is already stabilized, no forced appreciation opportunities here, which I am OK with. It seems like a solid deal I can just buy and hold.

Asking 810,000

100% leased, renovated in 2018, strong location with tenants who pay on time. 

Income 110,000

Expenses ~~40,000 (about 40%)

Debt Service 36,000

Cash Flow roughly 35,000

Deal is off market and has multiple offers. What are some creative ways I can win this deal without overpaying?

Overpaying is relative. If there are multiple offers it will go to the highest bidder all other things being equal. What is your bottom line for the returns you are targeting? Determine your floor and put your best foot forward.

 

Originally posted by @Khizar Hanif :

Hey all, 

Need some deal advice and some creativity. Have a 12-unit that I'm wanting to offer on. This deal is already stabilized, no forced appreciation opportunities here, which I am OK with. It seems like a solid deal I can just buy and hold.

Asking 810,000

100% leased, renovated in 2018, strong location with tenants who pay on time. 

Income 110,000

Expenses ~~40,000 (about 40%)

Debt Service 36,000

Cash Flow roughly 35,000

Deal is off market and has multiple offers. What are some creative ways I can win this deal without overpaying?

 If upside in value add is limited, just confirm the rents are "proper". You would hate to pay for a place that is 100% occupied and rents are $1400 while the competition is getting 1200-1300. You may have long vacancies when it does occur.  

Cash speaks!  All cash, no contingencies would make your offer stick out.

Question is do you have the cash to do it and ae you willing to take the risk?

Good luck

Thanks for all the feedback! Through our rapport with the broker we got the property under contract at 750k and a 30-day due diligence period. 

After touring today, we realized that there is still room for improvement here and there, specifically to the exterior facade of the buildings. Additionally, the units are sitting on an acre of land with ample parking and about 15,000 sq ft of undeveloped land. We could potentially add 8-10 more units in the future, if the numbers work. There are 3 building (4 units each) with significant space in between to add amenities such as a playground for kids, BBQ area, etc to make it feel like a community. Making it feel like a community will make tenants feel more comfortable and improve the likelihood of them staying if and when we decide to make incremental rent increases. 

As far as expenses go, from what I have seen it's fair to underwrite a renovated property at 40% of income. Outdated properties would be closer to 50%. Is that a fair assumption? We feel it's very possible to operate it at 40%.

What about taxes? The tax assessment currently is ~300k. How can we keep that low? If we get assessed higher, it can really hurt us. What do you guys do to keep taxes to a minimum?

This is my first acquisition of this type so any further advice, specifically things to look out for during due diligence, would be appreciated!

@Khizar Hanif

Multiple offers and it goes under list price? That smells fishy. Usually multiple offers mean above asking. 5-10% over asking. That’s very odd.

@Josh C.

The broker knows us pretty well, which helped us get the deal. Additionally, we probably had the strongest financials out of all the offers. The deal looks good to me so far and is worth pursuing, I’m not thinking about it in terms of it being fishy. That’s what due diligence is for. If something comes up and we don’t want to deal with it, we’ll walk away.

Why are they selling? Owner's need money for another project? Owner's hate managing and are getting out? What if you made an offer to keep them on for a small profit share, but carry no risk?  I would take an offer like that.