Analyzing an apartment complex deal ?

2 Replies

I need help analyzing this deal. to see if its worth it. my first time buying an apartment complex and not sure what to look for?

PURCHASE

Purchase Price: $ 499,900

Amount Financed: - $ 399,920

Down Payment: = $ 99,980

Purchase Costs: + $ 9,998

Rehab Costs: + $ 0

Total Cash Needed: = $ 109,978

Price Per Square Foot: $ 66.7

Price Per Unit: $ 62,488

RETURNS & RATIOS

Cap Rate: 10.7%

Cash on Cash: 17.3%

Return on Investment: 3.4%

Internal Rate of Return: 3.4%

Rent to Value: 1.3%

Gross Rent Multiplier: 6.5

Debt Coverage Ratio: 1.6

FINANCING

Loan Type: Amortizing

Loan Amount: $ 399,920

Loan to Value (LTV): 80%

Loan Term: 20 Years

Interest Rate: 6%

Loan Payment: $ 2,865 Per Month

$ 34,382 Per Year

ASSUMPTIONS

Vacancy: 5%

Rent Collection: Monthly

Appreciation: 3% Per Year

Income Increase: 2% Per Year

Expenses Increase: 2% Per Year

Selling Costs: 6% of Sales Price

Land Value: $ 0

PURCHASE COSTS

Total (2% of Price): $ 9,998

REHAB COSTS

Total: $ 0

Johnny,

You did not provide enough details to see if this deal is worth pursuing.

Here is what's missing from your analysis:

  • unit mix with square footage, current and projected rents, and rents per sqft
  • current and projected rent collections and other income
  • vacancy factor (5% is not enough)
  • current and projected expenses broken down by category (don't forget CapEx reserves)
  • 5-10 years projected P&L statement
  • exit strategy: sell - when and at what cap rate, refinance
  • rehab budget - you cannot seriously consider $0 in this category

Do yourself a huge favor and build your own proforma spreadsheet. That way you will understand what numbers go where, how they depend (or not) on each other, and how to estimate them correctly.

Read "Buying and Selling Apartment Buildings" book by Steve Burgess. This book has plenty of detailed analysis spreadsheets and you can use them to create your own.

Nick

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