25 Units Purchase Planned. Would love thoughts/alternatives.

7 Replies

I am thinking of purchasing a 25 unit group of mixed properties in one town. 2 small mobiles, 1 SFH, multiple duplexes, 1 quad, 1 8-plex. Total 18599 sq foot. Purchase price $1,000,000. Repair and closing cost estimate $400,000. Down pmt 20%. Interest rate 5.15% with no PMI or lender points/fees. Total monthly rent currently 16,000 and with improvements/rennovations expected to be 20,000+. I assumed a 7% vacancy rate, 7% cap ex, and 10% to property mgt (as each place will be "fully updated" to a B or better standard most in B locations). P&I will be expected to be $10,500. Utility/Lawn expenses are about $2000 per month. Local PM is excellent.

Using calculators I find I will be bringing in just shy of $200 per door per month with an approximate 5% COC ROI and a purchase cap rate of 15.5%. The final purchase cost per Sq foot will be about $75.

I plan to purchase and then refinance once everything is fixed up and rented. 

What are the good and bad of the deal?

What options would others consider instead? What type of investments have you done in small multi-space?

Given the above, does this seem like a reasonable long term buy and hold investment?

What options would others consider instead?

If I had to hold 1 year of 401K/IRA investments to make it happen would it be worth it?

I put this on Multifamily / Apartments as a post. It might have been good under calculators. Stock vs Real Estate? Noob needs help understanding what a good deal looks like... or even need comparisons. Tyring to get the right keywords for those Real Estate Pros and Experienced investors who would have the experience to reply. Thanks for any help.

I didn't take the time to really pencil this all out, but sounds like the COC is pretty low. I wouldn't do a deal at 5% COC, but as long as you're personally okay with that metric, then that is totally up to you. Sounds like you aren't taking on investors, but usually investors will want to see 8%+. There could be a miscalculation in there somewhere though if your COC is really that low. I would say for the cash you're looking to invest, you could place it elsewhere and expect a much better return. Again, I did not pencil this all out though so I'm assuming your calculations are all correct and there is no error causing your COC to be lower than expected.

@Brian Black to me the important figure is the 200 dollars per unit. Sounds like you have taken the time to scout out the neighborhoods. I do not see an allowance for water and sewer for any of the properties. The property taxes may not reflect the latest sold values. You can go to the county web site and figure those out.

@MichaelOrlando Thank you for the reply. It seems when I use different calculators from different charts/graphs they do come out a little different. However, they do seem to all come out under 8%. I am not taking investors and all of these in a local county so I can watch them closely and feel like there is value in that for me. I do think I overestimated repairs to include making them all "perfect" so I have some leeway to bring up the COC metric likely. Could put off some of the "repairs" that will not immediately generate a return and use the cap-ex fund over the next 2 years to pay for them. Thus the COC return would reflect better I think. But, If I do this it might cost me some time before I refinance as well...

@Bjorn Ahlblad Thank you so very much for replying. I am very familiar and comfortable with the neighborhoods. Several are in very desirable locations (1/2), 1/4 in a good to average location, and 1/4 in a less ideal location. I am aiming to have nicer than average units for just above average prices in the need so will update to a standard just above the competition if possible. You might be right, I probably will incur a little more in water and sewer when the 8 plex is fully online (currently only 4 rented so will need rehab and are not reflected in known costs of water/sewer now). I will investigate. However, some of the investments in the properties are to separate out electric, gas, and as many utilities as possible to put those onto the renter column to pay. I usually pay for lawn and trash but try not to pay for anything else if possible. Some we can not escape shared utilities of course at times.

Hi @Brian Black

Off the bat and without analyzing the numbers thoroughly, I would be weary of underwriting this portfolio as one single 25-unit property. You are mixing SF (including those súpleles, I’d argue) with MF (8 plex) and some mobile units. A 100-house SF portfolio in the same neighborhood has a few very different but extremely important differences in its underwriting and operating fundamentals than a 100 unit sky-rise or garden-style MF, for instance.

You almost have to look at it as 2 or 3 different properties and underwrite them separately. And you may not be able to refinance as a portfolio. Or you may, who knows? But it’s not certain and therefore, to us, it would be a risky assumption for a long-term hold.

Having said that, how do the numbers look if you go in and, in the course of a few months, renovate/fix and sell each one individually? Buy wholesale and sell retail. Then go and buy a single large property or a homogenous portfolio. By then you may want to new one or two or a few of the top performers, then refi those.

If you’re a real estate professional maybe get your license and hang it at a brokerage, get some commission from it, and kill your active profits with any passive losses you may have produced.

@Garavito Thank you for the thoughts. I will inquire about possibly separating them re: financing. It might make it easier to pick one or two off if needed. Each property does bring its own risks/benefits but at this time my local bank it willing to finance them all together. Once you mention that though, perhaps I should ask them to do them separately which would be more clean as I buy/sell/etc... down the line towards larger units. I plan to move toward MAINLY larger multi fam in the future, with occasional fip.