LET'S ANALYZE THIS 33 Unit Apartment Deal together !!! MEMPHIS TN

Multi-Family and Apartment Investing
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LET'S ANALYZE THIS 33 Unit Apartment Deal together !!! MEMPHIS TN

Darren Crawford
Investor · San diego, CA · Member since 2016 · 14 posts · 4 votes

Hi Bigger Pockets Family ….

So I wanted to share a deal I’m currently working on and hear everyone’s thoughts ,but before I do I’ll tell you how I found the deal.

Step.1

I located a market I wanted to invest in which happened to be Memphis ,TN due to a number of reasons then I narrowed down to about 4 zip codes I wanted to invest in.

Step.2

I made a list using Propstream (No I am not an affiliate just like the service )

Search Criteria

-Targeted 5+ unit Property owners

-Property Owners that owned for 10+ years or longer

-That had at least 50% equity

Step .3

Once I compiled my list I came up with around 169 property owners that met my basic criteria

Using Batch Skip Tracking I tracked down around 60% of the numbers to these potential sellers and started to cold call each one (NO RINGLESS VOICEMAILS ) by the third phone call I met a gentleman named Matt who stated he is a builder owned a number of properties all over memphis and two other markets and was interested in selling a 33 Unit apartment complex in Memphis TN.

Step 4 (Build Report )

After Speaking with Matt I discovered he is willing to sell a 33 unit complex in the Berclair 38108 area of Memphis using a 1031 Tax Deferred exchange account now the seller isn't the most motivated seller he is literally holding on to the property for a tax write off but would be willing to sell to use the capital to buy another larger property. He stated he bought the property 10 years ago for around $730k and would only entertain an offer of $800K or higher stated the building is 90% occupied and all rents are between $450-$500 also stated the rent could increase 20-30% after repairs are made. He said he hasn't been to the property in about 7 years but it has been well maintained through his property management team.

:: THE BREAK DOWN :::

(Berclair Area of Memphis TN 38108 which means it is in a C- area )

Asking Price $800K for 33 units complex

Repairs Estimate $200k

$1,000,000 divided by 33= $30,303 Cost per door

33 units Break down

Consisting of 50 % of the units 2/1 and the rest 1/1 and 3/2

Rented at $450 Per Month

33 units 90% occuppied =29 units

29 units at $450 per month = $13,050

Round all rents up to $450 per month each

Vacancy: 10%

Gross Annual Income $156,600

$156,600 (annual ) divide by 2 (50% Rule for expenses )= $78,300

NOI = $78,300

Cap Rate = 7.8% Cap Rate

Annual Property Tax = $3,100

Annual Insurance = $5,000

Management 10% = $1,300 per month

DSCR = 1.6

Step 5 ( Making the Offer )

I feel like $800k could be a little high so I plan to make two offers to see which would be more appealing to the seller

Offer 1 All Cash Offer of $770k (15 day inspection period )

Offer 2 Offer $800k but I would ask the seller to carry a second position loan for $300k at 6% interest amortized for 12 months (7 day inspection period)

My main strategy is the BRRR approach. I will use Hard Money at 9% amortized for 12 months. Within that time I plan to renovate the property, increase rents, get it to 100% occupancy then refinance at 5% amortized for 30 years.

What do you guys think ?

3Reply
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Most Popular Reply

Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
6y
Originally posted by @Darren Crawford:

Hi Bigger Pockets Family ….

So I wanted to share a deal I’m currently working on and hear everyone’s thoughts ,but before I do I’ll tell you how I found the deal.

Step.1

I located a market I wanted to invest in which happened to be Memphis ,TN due to a number of reasons then I narrowed down to about 4 zip codes I wanted to invest in.

Step.2

I made a list using Propstream (No I am not an affiliate just like the service )

Search Criteria

-Targeted 5+ unit Property owners

-Property Owners that owned for 10+ years or longer

-That had at least 50% equity

Step .3

Once I compiled my list I came up with around 169 property owners that met my basic criteria

Using Batch Skip Tracking I tracked down around 60% of the numbers to these potential sellers and started to cold call each one (NO RINGLESS VOICEMAILS ) by the third phone call I met a gentleman named Matt who stated he is a builder owned a number of properties all over memphis and two other markets and was interested in selling a 33 Unit apartment complex in Memphis TN.

Step 4 (Build Report )

After Speaking with Matt I discovered he is willing to sell a 33 unit complex in the Berclair 38108 area of Memphis using a 1031 Tax Deferred exchange account now the seller isn't the most motivated seller he is literally holding on to the property for a tax write off but would be willing to sell to use the capital to buy another larger property. He stated he bought the property 10 years ago for around $730k and would only entertain an offer of $800K or higher stated the building is 90% occupied and all rents are between $450-$500 also stated the rent could increase 20-30% after repairs are made. He said he hasn't been to the property in about 7 years but it has been well maintained through his property management team.

:: THE BREAK DOWN :::

(Berclair Area of Memphis TN 38108 which means it is in a C- area )

Asking Price $800K for 33 units complex

Repairs Estimate $200k

$1,000,000 divided by 33= $30,303 Cost per door

33 units Break down

Consisting of 50 % of the units 2/1 and the rest 1/1 and 3/2

Rented at $450 Per Month

33 units 90% occuppied =29 units

29 units at $450 per month = $13,050

Round all rents up to $450 per month each

Vacancy: 10%

Gross Annual Income $156,600

$156,600 (annual ) divide by 2 (50% Rule for expenses )= $78,300

NOI = $78,300

Cap Rate = 7.8% Cap Rate

Annual Property Tax = $3,100

Annual Insurance = $5,000

Management 10% = $1,300 per month

DSCR = 1.6

Step 5 ( Making the Offer )

I feel like $800k could be a little high so I plan to make two offers to see which would be more appealing to the seller

Offer 1 All Cash Offer of $770k (15 day inspection period )

Offer 2 Offer $800k but I would ask the seller to carry a second position loan for $300k at 6% interest amortized for 12 months (7 day inspection period)

My main strategy is the BRRR approach. I will use Hard Money at 9% amortized for 12 months. Within that time I plan to renovate the property, increase rents, get it to 100% occupancy then refinance at 5% amortized for 30 years.

What do you guys think ?

If your numbers are accurate, it seems to be a good enough deal to submit an LOI to start the process.

I put in the numbers in my value-add analyzer. To be extra conservative, I put the renovation at $10K per door and the rent increase to be at 20% ($90/month/unit). My analyzer tells me "YES" the deal is worth looking into.

Here it is:

3Reply
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  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Darren Crawford:

    Hi Bigger Pockets Family ….

    So I wanted to share a deal I’m currently working on and hear everyone’s thoughts ,but before I do I’ll tell you how I found the deal.

    Step.1

    I located a market I wanted to invest in which happened to be Memphis ,TN due to a number of reasons then I narrowed down to about 4 zip codes I wanted to invest in.

    Step.2

    I made a list using Propstream (No I am not an affiliate just like the service )

    Search Criteria

    -Targeted 5+ unit Property owners

    -Property Owners that owned for 10+ years or longer

    -That had at least 50% equity

    Step .3

    Once I compiled my list I came up with around 169 property owners that met my basic criteria

    Using Batch Skip Tracking I tracked down around 60% of the numbers to these potential sellers and started to cold call each one (NO RINGLESS VOICEMAILS ) by the third phone call I met a gentleman named Matt who stated he is a builder owned a number of properties all over memphis and two other markets and was interested in selling a 33 Unit apartment complex in Memphis TN.

    Step 4 (Build Report )

    After Speaking with Matt I discovered he is willing to sell a 33 unit complex in the Berclair 38108 area of Memphis using a 1031 Tax Deferred exchange account now the seller isn't the most motivated seller he is literally holding on to the property for a tax write off but would be willing to sell to use the capital to buy another larger property. He stated he bought the property 10 years ago for around $730k and would only entertain an offer of $800K or higher stated the building is 90% occupied and all rents are between $450-$500 also stated the rent could increase 20-30% after repairs are made. He said he hasn't been to the property in about 7 years but it has been well maintained through his property management team.

    :: THE BREAK DOWN :::

    (Berclair Area of Memphis TN 38108 which means it is in a C- area )

    Asking Price $800K for 33 units complex

    Repairs Estimate $200k

    $1,000,000 divided by 33= $30,303 Cost per door

    33 units Break down

    Consisting of 50 % of the units 2/1 and the rest 1/1 and 3/2

    Rented at $450 Per Month

    33 units 90% occuppied =29 units

    29 units at $450 per month = $13,050

    Round all rents up to $450 per month each

    Vacancy: 10%

    Gross Annual Income $156,600

    $156,600 (annual ) divide by 2 (50% Rule for expenses )= $78,300

    NOI = $78,300

    Cap Rate = 7.8% Cap Rate

    Annual Property Tax = $3,100

    Annual Insurance = $5,000

    Management 10% = $1,300 per month

    DSCR = 1.6

    Step 5 ( Making the Offer )

    I feel like $800k could be a little high so I plan to make two offers to see which would be more appealing to the seller

    Offer 1 All Cash Offer of $770k (15 day inspection period )

    Offer 2 Offer $800k but I would ask the seller to carry a second position loan for $300k at 6% interest amortized for 12 months (7 day inspection period)

    My main strategy is the BRRR approach. I will use Hard Money at 9% amortized for 12 months. Within that time I plan to renovate the property, increase rents, get it to 100% occupancy then refinance at 5% amortized for 30 years.

    What do you guys think ?

    Sounds like a decent deal on the surface. You should remove the equity filter when creating a list. It’s not accurate and you likely missed some opportunities. This holds true for resultados lists as well.

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    6y

    In addition to what @Greg Dickerson stated you also may want to consider a longer inspection period. It will take time to go through 33 units thoroughly. Giving yourself only 7-15 days may put you in a time crunch unless that’s standard for your market on these sized deals or you have a lot of experience with them.

    2Reply
  • Darren Crawford
    OP
    Investor · San diego, CA · Member since 2016 · 14 posts · 4 votes
    6y

    @Greg Dickerson Thanks on my next list I'll remove the equity filter and see how that list holds up. 

    0Reply
  • Darren Crawford
    OP
    Investor · San diego, CA · Member since 2016 · 14 posts · 4 votes
    6y

    @Brian Garrett yeah I agree I wanted to make my offer appear more aggressive with a faster inspection period but truth  be told he is going to be using a 1031 tax deferred exchange account  and those deals take some time so I figured I would be able to wiggle some more time out for inspection if I really needed it. but I have an amazing apartment manager and a really good experienced contractor that should be able to get everything done in 15 days usually I do ask for longer ....  

    0Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Darren Crawford:

    Hi Bigger Pockets Family ….

    So I wanted to share a deal I’m currently working on and hear everyone’s thoughts ,but before I do I’ll tell you how I found the deal.

    Step.1

    I located a market I wanted to invest in which happened to be Memphis ,TN due to a number of reasons then I narrowed down to about 4 zip codes I wanted to invest in.

    Step.2

    I made a list using Propstream (No I am not an affiliate just like the service )

    Search Criteria

    -Targeted 5+ unit Property owners

    -Property Owners that owned for 10+ years or longer

    -That had at least 50% equity

    Step .3

    Once I compiled my list I came up with around 169 property owners that met my basic criteria

    Using Batch Skip Tracking I tracked down around 60% of the numbers to these potential sellers and started to cold call each one (NO RINGLESS VOICEMAILS ) by the third phone call I met a gentleman named Matt who stated he is a builder owned a number of properties all over memphis and two other markets and was interested in selling a 33 Unit apartment complex in Memphis TN.

    Step 4 (Build Report )

    After Speaking with Matt I discovered he is willing to sell a 33 unit complex in the Berclair 38108 area of Memphis using a 1031 Tax Deferred exchange account now the seller isn't the most motivated seller he is literally holding on to the property for a tax write off but would be willing to sell to use the capital to buy another larger property. He stated he bought the property 10 years ago for around $730k and would only entertain an offer of $800K or higher stated the building is 90% occupied and all rents are between $450-$500 also stated the rent could increase 20-30% after repairs are made. He said he hasn't been to the property in about 7 years but it has been well maintained through his property management team.

    :: THE BREAK DOWN :::

    (Berclair Area of Memphis TN 38108 which means it is in a C- area )

    Asking Price $800K for 33 units complex

    Repairs Estimate $200k

    $1,000,000 divided by 33= $30,303 Cost per door

    33 units Break down

    Consisting of 50 % of the units 2/1 and the rest 1/1 and 3/2

    Rented at $450 Per Month

    33 units 90% occuppied =29 units

    29 units at $450 per month = $13,050

    Round all rents up to $450 per month each

    Vacancy: 10%

    Gross Annual Income $156,600

    $156,600 (annual ) divide by 2 (50% Rule for expenses )= $78,300

    NOI = $78,300

    Cap Rate = 7.8% Cap Rate

    Annual Property Tax = $3,100

    Annual Insurance = $5,000

    Management 10% = $1,300 per month

    DSCR = 1.6

    Step 5 ( Making the Offer )

    I feel like $800k could be a little high so I plan to make two offers to see which would be more appealing to the seller

    Offer 1 All Cash Offer of $770k (15 day inspection period )

    Offer 2 Offer $800k but I would ask the seller to carry a second position loan for $300k at 6% interest amortized for 12 months (7 day inspection period)

    My main strategy is the BRRR approach. I will use Hard Money at 9% amortized for 12 months. Within that time I plan to renovate the property, increase rents, get it to 100% occupancy then refinance at 5% amortized for 30 years.

    What do you guys think ?

    If your numbers are accurate, it seems to be a good enough deal to submit an LOI to start the process.

    I put in the numbers in my value-add analyzer. To be extra conservative, I put the renovation at $10K per door and the rent increase to be at 20% ($90/month/unit). My analyzer tells me "YES" the deal is worth looking into.

    Here it is:

    3Reply
  • Peter Nikic
    Investor · New York & TN · Member since 2019 · 325 posts · 219 votes
    6y

    Looks like a good and profitable deal.

    I would ensure the expenses paid by landlord are fixed (heat, electric etc - I don't see them broken down). When left to tenants, they can drain all of your income. Especially low rent apartments such as these ans so many of them.

    I wouldn't worry so much as to the condition of the apartments, just ensure that the rents are accurate.

    Do you know what a $450 apartment looks like in Memphis? You should without having to look at it. The tenants have already verified that the apartment is a $450 apartment otherwise they would NOT be tenants. Save your time and money on inspecting the apartments and ensure the building structure and larger components such as boilers, AC systems etc are in good shape. 

    Having said that, there are a lot of apartments, which means a lot of work and turnover. When the rents are so low, it means you'll spend more time making less money. Still very profitable though. Good luck. 

    BTW do you have a draft of an LOI for Tennessee you'd be willing to share with me?

    0Reply
  • Darren Crawford
    OP
    Investor · San diego, CA · Member since 2016 · 14 posts · 4 votes
    6y

    @Michael Ealy what deal analyzer software are you using ? according to the seller these numbers are accurate but still waiting for the Rent leger or rent roll to verify from seller and normally I put each unit at $10k for rehabs but the individual units are in pretty good shape so I adjusted my numbers a bit maybe I could be more conservative and estimate at $330k but I am still in the inspection period stage,but I did come to the same conclusion that the deal is worth pursuing...I'll keep you updated on the progress but if all the numbers are right how would you structure this deal ??  

    0Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y

    I came up with my own deal analyzer.

    If it sounds like a great deal, I would keep the deal structure simple. Offer them what they're asking for in your LOI. You can always renegotiate the deal if based on your due diligence, it's not as good as you expected.

    1Reply
  • Darren Crawford
    OP
    Investor · San diego, CA · Member since 2016 · 14 posts · 4 votes
    6y

    @Peter Nikic thanks for checking the deal out yess all of our expenses are expected to be fixed and any overage I plan to roll over to the tenants to make them equally responsible,now the break down for those expenses (utilities ext) I just calculated in the 50% rule for now but once I have a better understand of those numbers I will share them with you guys still in the due diligence stages,but I do agree with you we won't spend to much money on the inspection phase just yet on the plus side the seller did state the the AC and broiler were recently upgraded so that's a life saver as for the work I don't mind hard work as long as the numbers make sense and pays off. I am drafting up my LOI now PM your email and I'll send you a copy of it.

    0Reply
  • Jack Inman
    Attorney · Memphis, TN · Member since 2017 · 130 posts · 104 votes
    6y

    @Darren Crawford Does the seller have written leases in place? I suspect tenants in the 450-500/month range are going to have a relatively high eviction rate. But 30k per door isn't bad. Depending on the condition of the property, it may be a great deal. Keep us posted!

    0Reply
  • William Coet
    Lititz, PA · Member since 2013 · 595 posts · 272 votes
    6y

    Have you considered possible risk factors that could erode your tenant base 5-10-15 years down the road?  

    1Reply
  • Brandon Kamm
    Commercial Real Estate Broker · Memphis, TN · Member since 2010 · 151 posts · 82 votes
    6y

    You sure about the property taxes? We pay city and county here and no way $3100 a year covers both for that valuation/assessment. I have a good idea of what property you are talking about based on your description and that number seems way to low. I would think just the city could be $3100 year making county closer to $3800....likely higher. Just making sure you had your info all there as that seems extremely low for property tax here

    1Reply
  • Darren Crawford
    OP
    Investor · San diego, CA · Member since 2016 · 14 posts · 4 votes
    6y

    @Jack Inman Yes most units have a 1 year lease with an option to renew but some are on month to month no more then 20%. Usually lower rents do have higher eviction rates to help limit some of that risk  we plan to target older section 8 tenant they seem to be more stable when it comes to lower rents.

    @William Coet Yes we have...is there any particular issue you care to point out ? 

    1Reply
  • Igor Avratiner
    Investor · Philadelphia, PA · Member since 2015 · 69 posts · 28 votes
    6y

    @Darren Crawford this will probably sound like a stupid question and I don’t know anything about this market.

    Considering multi family is one of the hottest asset classes right now and properties are selling for double or more what they sold for 5-10 years ago...

    Should there be any concern with buying a multi family property that only appreciated from 730k to 800k during the same time period?

    If everything checks out it sounds you’d be buying this at a steep discount and the seller is highly motivated.

    0Reply
  • William Coet
    Lititz, PA · Member since 2013 · 595 posts · 272 votes
    6y

    @Darren Crawford  No issues that I know of, I just think that is an important step to evaluate the risk.  What things did you consider to determine the stability of the tenant base?

    0Reply
  • Zach Griffin
    Investor · Fort Lauderdale, FL · Member since 2014 · 24 posts · 20 votes
    6y

    @Darren Crawford what ARV are you projecting and how did you come up with that figure? That's a big piece that seems to be missing from your analysis given your BRRRR plans. Also, have you already spoken with a lender that's willing to give you a 30 year amort on the refi? Granted I invest in a different market, but I haven't heard of a lender willing to give a 30 year amort on a commercial loan. If you haven't, I would run your numbers using a 20 year amort to confirm if the cash flow post-refi is enough for your return requirements.

    0Reply
  • Karen Schimpf
    Lender · Nat'l Commercial Mtg Lender - Round Rock, TX · Member since 2014 · 916 posts · 235 votes
    6y

    @Darren Crawford  @Zach Griffin is correct, the typical conforming commercial loan is a 5-year fix with a 20-year amortization (Fannie and Freddie small balance loan minimum amount is $1MM.) but there are Alt-A products that either have a 5-year fix, 7-year fix, 10-year fix and even a 30-year fix with a 30-year amortization.  Also, be aware that conforming products (5-year fix with a 20-year amortization) utilize a global debt service which means they look at all of your income from your job and your other businesses and include all your personal and business debt to debt service the property.  The Alt-A does not utilize a global debt service to qualify, the Alt-A product debt services the property.  So basically the product offers less documentation and is a little easier to qualify for a commercial loan.  Of course, the rates are higher on the 30-year amortization products but like the 30 fixed in the residential product, people typically utilize the 30-year product for the lower payment.

    Wishing you the best!

    0Reply
  • Darren Crawford
    OP
    Investor · San diego, CA · Member since 2016 · 14 posts · 4 votes
    6y

    @Brandon Kamm your absolutely right when I wrote the original post I was merely going off the sellers word about the property tax but after further research we discovered its an additional  $4,200 due every year for taxes for the county so were adjusting our numbers now. First time we've been in a market with two sets of taxes but were adjusting.

    @Igor Avratiner no question is dumb thanks for asking we come from the San Diego,CA market where properties can really appreciate now some parts of memphis properties do appreciate at a good rate ,but our investing approach is never really based of future appreciation more so does the property cash flow and does the deal make sense can we get a good ROI ?future appreciate is more like icing on the cake for us.

    0Reply
  • Darren Crawford
    OP
    Investor · San diego, CA · Member since 2016 · 14 posts · 4 votes
    6y

    @Zach Griffin With the numbers we are projecting the ARV should come in around $1.5M , but yes I should of added the ARV my apologies. Also yes we do have a lender I was just speaking today about the matter cause they seem to be one out of a small few that offers a 30 year amort loans but the they come in at 75% LTV and little high interest rate in addition I do have two other lenders on stand by that just do the typical 20 yr Amort and I already ran the numbers for 20 years and the property would still cash flow.

    0Reply
  • Zach Griffin
    Investor · Fort Lauderdale, FL · Member since 2014 · 24 posts · 20 votes
    6y

    @Darren Crawford that's great on both fronts. Sounds like a solid deal. Thanks for sharing, and best of luck with it! Keep us updated on how it goes. 

    0Reply
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