Houston Apartment - 29 units

Multi-Family and Apartment Investing
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Houston Apartment - 29 units

Chris Bounds
Investor · Sugar Land, TX · Member since 2012 · 554 posts · 232 votes

Ok BPers. I said in a post a while back I'd post the numbers on a small apartment complex that I am pursuing. Here they are. Comments are welcome:

Purchase Price: $325,000
Units: 29
Mix: all one bed/bath (one efficiency)
Structure: 2 two-story buildings
Current rent: $500
Vacancy: 45% (16 vacant units)
GOI: $95k
NOI: $37k (seller's info)

My estimated repairs:
Interior (vacant units): $80,000 - mostly cosmetic with new appliances and window A/C units.
Exterior: TBD (new balcony railing $8000 + updated electrical (units have gas stove hookups currently), siding repair, and paint, possible dry wood termite treatment)

Potential 1 year outlook:
Vacancy: 11% (conservative)
Rent: $550 ($450 for efficiency)
NOI: $169k
GOI: $59.7k

The only two pending snags for me on this deal are: cost for termite treatment and cost for electrical upgrading. The termite issue is the big one for me. I hear fumigation is not cheap. Also, I'd have to vacate one building to treat it. That means either they have to move out or I have to renovate units for them to move into first - which means more upfront cost. The occupied units all need work ($60k estimated), but I had planned on doing them progressively after filling the vacant units. Even still this seems like a heck of a deal, but with my funds it could be a deal breaker - unless the seller is open to renegotiating.

Comments, suggestions, advice?

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y

Hey Chris Bounds, I used to live in Rosenberg in the late 80's and early 90's. We were there last here and I'm stunned with how that area has grown. It reminds me of "Blade Running" instead of what I remember.

Anyways. If there is good demand, and termites haven't eaten the place up, this looks pretty promising. You don't just fumigate for termites. You can't really get rid of them. They live in huge underground colonies. You have to create a chemical barrier below your property to encourage them to eat other buildings. And they can do a LOT of hidden damage.

You're paying $11,500 per unit for $500 in rent. That's a 4.3% ratio. You have some room to spend money for the repairs.

The big question is do you have the cash to deal with this turnaround situation? Its going to take money to do the repairs and to hang on until you can get it turned around.

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  • Chris Bounds
    OP
    Investor · Sugar Land, TX · Member since 2012 · 554 posts · 232 votes
    11y

    @Jordan T. I could write an extensive blog about this deal, but I haven't gotten around to it yet.  I did go into it a little in this post.  

    Before I purchased the property my final repair estimates were $114k.  I secured 100% financing including repairs.  I had enough credit lines to help out until it stabilized.

    Repairs ultimately came out to around $160k - way above what I estimated, kind of.  The leased units needed repair too.  The $114k didn't include those units.  That is mostly what the additional repair costs were. 

    I wasn't able to refinance the property so I sold to another investor (who I met through another BP member).  The issue with my refi was mostly since I purchased it with 100% financing.  Most banks I spoke with would still only lend 80% of the PP.  

    I estimated the proforma value between 8-9% cap rate.  It's closer to 9-10% which makes it around $950k - $1m.  

    Overall it was a good deal, but it would have been a better deal for me if I brought in a experienced MF partner.  

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  • Josef Torkelsen
    Aliso Viejo, CA · Member since 2014 · 24 posts · 14 votes
    10y

    @Chris Bounds first off, I enjoyed reading your story on this apartment complex.  I own an apartment complex in the same area and I'm looking to shake up my property management team.  Do you have a property management recommendation that you can provide or even check to see what management company the person uses who purchased your complex from you and if they have a good experience or not?  Any help is appreciated! 

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  • Chris Bounds
    OP
    Investor · Sugar Land, TX · Member since 2012 · 554 posts · 232 votes
    10y

    @Josef Torkelsen, I do have a good PM company for single-family that I can recommend. Towards the latter part of the time I owned this apartment complex I transitioned from resident managed to a PM company. They did what they did well, but for smaller complexes that do not have an on-site office I felt that having more control over the processes is the best way to go. It's how I'm operating now (with single-family) and it's how the investor that bought the complex operates as well (and he owns a lot of doors).

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  • Josef Torkelsen
    Aliso Viejo, CA · Member since 2014 · 24 posts · 14 votes
    10y

    @Chris Bounds may I ask what PM company you used for the brief period of time before you sold?  Appreciate the input on what has worked for you though and I may choose to go that route as well.

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