Needing another set of eyes multi family 24 units

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Needing another set of eyes multi family 24 units

David Schlatter
Member since 2019 · 9 posts · 4 votes

I'm looking for some feedback, we have an opportunity to buy an off market property before it gets listed.  A little back ground we own 90 rentals and 4 storage unit locations.  So this is not new to us. We have been active since 2007. We are being given the chance to buy 2 -12 unit buildings built in 2018. I building is 12 2-bedroom 2 bath units. All have nice kitchens, lots of storage, full appliances with a washer and dryer in every unit.  Other building is a mix 2 bed 2 bath. 3 are 1 bed 1 bath and 3 are 3 bed 2 bath. All have balconies, forced air furnace and central AC.  Plenty of cement parking. Rents are average $850 a month, not much room to move up maybe $50 a month.  Expenses are $3500 a month with no management fee. And taxes are $1,000 a month not included in the Expenses. They will go up to $4,000 a month in 2031. They are under abatment currently.  You may get that number down some.  There is a 1% loan that I can take over that has $600,000 left on it. Till 2037 you have to pay $63,500 a year in semianual payments. $5300 a month.  Asking price is $2,300,000.  I can get a loan for the difference at 6% from the bank. It just doesn't leave much cash flow when i run the numbers. I just don't want to walk away from it if I am missing something.  There are not many this nice that come along, right in the middle of our market. In the past we have always bought property that after improvements we could raise rents $200 a month and get decent cash flow.  Just not sure if I want 24 more tenants with more yard just to say we have more doors. 

i am open to any suggestions and different ideas at how to view this.  I do have 8 single families that i can sell and move the money towards,  just looking at ideas. Or better ways to finance this? 

Thanks for any advice or reading. 

David

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Alex Morales
Member since 2026 · 97 posts · 57 votes
8mo

David, you've clearly got the experience to see what I'm seeing - the numbers are tight even with that 1% assumable loan. Let me break down how I'm looking at it.

At 24 units x $850 = $20,400/mo gross. Minus $3,500 expenses + $1,000 taxes = $15,900 NOI. Then your debt service: $5,300 on the assumable plus roughly $10,000-10,500/mo for $1.7M at 6% (depending on term) = $15,300-15,800/mo total debt service. That leaves maybe $100-600/mo cash flow on a $2.3M deal - essentially break-even.

And that's before 2031 when taxes jump another $3,000/mo. At that point you're underwater without rent increases.

A few thoughts on angles you might be missing.

First, is there value-add potential you're discounting? You mentioned these are "nice" 2018-builds with W/D in unit and all appliances. In most markets, modern units with those amenities can command $100-150+ above older stock. If market rents are truly only $50 above current, that's a saturation issue not a unit quality issue. Might be worth a deeper comp dive.

Second, that 1% assumable loan is valuable but the remaining balance is only 26% of purchase price. If you could negotiate the seller to carry a portion at favorable terms rather than bank financing the full $1.7M at 6%, the deal math changes significantly.

Third, your question about selling 8 SFHs to redeploy - what's your current yield on those? If you're getting 10%+ cash-on-cash on the SFHs, you'd be trading down significantly for the operational simplicity of MF at thin margins.

The "more doors just to say we have more doors" instinct you're flagging is the right question. At 90+ rentals you don't need vanity metrics. The deal needs to make sense standalone.

What market is this in? And what's the comparable rent for similar 2018-build product in the area?

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  • Alex Morales
    Member since 2026 · 97 posts · 57 votes
    8mo

    David, you've clearly got the experience to see what I'm seeing - the numbers are tight even with that 1% assumable loan. Let me break down how I'm looking at it.

    At 24 units x $850 = $20,400/mo gross. Minus $3,500 expenses + $1,000 taxes = $15,900 NOI. Then your debt service: $5,300 on the assumable plus roughly $10,000-10,500/mo for $1.7M at 6% (depending on term) = $15,300-15,800/mo total debt service. That leaves maybe $100-600/mo cash flow on a $2.3M deal - essentially break-even.

    And that's before 2031 when taxes jump another $3,000/mo. At that point you're underwater without rent increases.

    A few thoughts on angles you might be missing.

    First, is there value-add potential you're discounting? You mentioned these are "nice" 2018-builds with W/D in unit and all appliances. In most markets, modern units with those amenities can command $100-150+ above older stock. If market rents are truly only $50 above current, that's a saturation issue not a unit quality issue. Might be worth a deeper comp dive.

    Second, that 1% assumable loan is valuable but the remaining balance is only 26% of purchase price. If you could negotiate the seller to carry a portion at favorable terms rather than bank financing the full $1.7M at 6%, the deal math changes significantly.

    Third, your question about selling 8 SFHs to redeploy - what's your current yield on those? If you're getting 10%+ cash-on-cash on the SFHs, you'd be trading down significantly for the operational simplicity of MF at thin margins.

    The "more doors just to say we have more doors" instinct you're flagging is the right question. At 90+ rentals you don't need vanity metrics. The deal needs to make sense standalone.

    What market is this in? And what's the comparable rent for similar 2018-build product in the area?

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  • David Schlatter
    OP
    Member since 2019 · 9 posts · 4 votes
    8mo

    He just came back and told me to make an offer and they will look at it. What number makes it work in your opinion? Also a lower sell price will lower the property tax. Currently it is assessed at $2,600,000 So if it sells for $1,800,000 that will be the new price, so current taxes will drop and future takes drop as well. They are open to creative offers and to taking part as a No compete to also lower taxes. I would not take on the 1% Loam due to high payment I am thinking. 

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  • Nicholas Cokas
    Member since 2021 · 82 posts · 79 votes
    8mo

    David, I've been staring at this deal for a minute because something about the numbers doesn't sit right — but not in the way you think. I think you're actually leaving a lot of money on the table by only looking at this as a cash flow deal.
    Let me walk through what I'm seeing.
    **Your tax abatement is hiding a bigger number than anyone's calculated.**
    Everyone's focused on the $1,000/mo jumping to $4,000/mo in 2031. But that $4,000 figure is tied to the current $2.6M assessment. If you buy at $1.8M, most states reset the assessed value to sale price. That means your post-abatement taxes could land closer to $2,700/mo, not $4,000. That's $1,300/mo you just saved — $15,600 a year, $78,000 over the first 5 years after abatement expires. Nobody's putting that in the pro forma.
    But here's the part that takes some homework: it depends on how your county handles reassessment on a below-assessment sale. Some states auto-reset, some wait for the next cycle, and a few have appeal windows where you can force it. I'd want to know exactly which rules apply here before making an offer, because it changes your hold math by six figures over a decade.
    **The cost segregation angle on this deal is significant and nobody's mentioned it.**
    These are 2018 builds. Every appliance, every HVAC unit, every cabinet, the parking lot, the landscaping — all of that is reclassifiable under a cost seg study. On a $1.8M purchase, I've seen studies on similar vintage multifamily produce $400-550K in accelerated depreciation in year one.
    If you qualify as a Real Estate Professional — and at 90 rentals, you almost certainly do or your spouse could — those paper losses offset your other income dollar for dollar. Depending on your bracket, that's $120-180K back from the IRS. Not over time. Year one.
    Most people evaluate this deal on cash-on-cash and walk away. But the after-tax return is a completely different number. Have you run this with your CPA yet? Because that single conversation might change your entire view of this deal.
    **The 8 SFH sale needs to run through a 1031 — and the timing actually works in your favor.**
    You've got an off-market deal already identified. That's rare. Most 1031 exchanges fail because investors can't find a replacement property in the 45-day identification window. You already have yours. If those 8 SFHs have appreciated significantly since you bought them, the deferred capital gains could be $100K+. That's capital you keep working for you instead of handing to the IRS.
    The sequencing matters though. Your intermediary needs to be set up before you close on any SFH sale, and there are some structuring details around partial exchanges and boot that can trip people up. Worth a conversation with a QI who handles portfolio-level exchanges, not just single-property stuff.
    **On the financing — I think the structure matters more than the price.**
    You mentioned skipping the 1% assumable because of the high payment. I get it — $5,300/mo on $600K is aggressive because of the short amortization. But before you toss it, consider this: that 1% rate is worth something in a 6% world. The question is whether you can restructure around it.
    What if instead of bank financing the full $1.7M gap, you asked the seller to carry $800K-1M at 3-4% interest-only for 5 years? Bank covers the rest. Your blended rate drops to 4.5-5%, your monthly payment drops by $1,500-2,000 vs the all-bank scenario, and the deal actually cash flows from day one. Sellers who agree to carry often accept a lower purchase price too, because the interest income makes up the difference over time.
    The "no compete" structure the seller mentioned is interesting — that's an allocation strategy that can reduce the portion of the purchase price assigned to real property, which directly lowers your property tax basis. It's legitimate but needs to be structured carefully. Your CPA and attorney need to coordinate on that one.
    **The operational angle nobody's talking about.**
    You asked if it's worth taking on 24 more tenants just to say you have more doors. That's the right instinct — vanity metrics don't matter at your scale. But flip it around: what are those 8 scattered SFHs actually costing you in management overhead?
    8 different roofs, 8 HVAC systems, 8 yards, 8 insurance policies, 8 tax parcels. Every one of those is a separate line item in your books and a separate vendor relationship. 24 units in 2 adjacent buildings from 2018 with central systems is the opposite — consolidated everything. Your cost per door to manage drops significantly, your reporting gets cleaner, and if you're ever looking to refi or sell the portfolio, consolidated multifamily is a much simpler story to tell a lender than scattered SFH.
    I work on the data and systems side of property management and I see this pattern constantly — investors who hold scattered SFH portfolios don't realize how much operational drag they're carrying until they consolidate into MF and their management costs drop 20-30% per door.
    **What I'd want to know before making the offer:**
    1. Exact reassessment rules in your county for below-assessment sales2. Cost seg estimate from a firm that specializes in multifamily (not a generalist)3. Your CPA's take on REP status and how the depreciation hits your specific tax situation4. What the 8 SFHs are actually yielding after you account for scattered management costs — not just cash flow, but true all-in cost per door
    The cash flow spreadsheet says this deal is marginal. The after-tax, after-consolidation, after-reassessment picture might tell a very different story. I've seen deals like this where the investor who only looked at cash flow walked away, and the investor who looked at the full picture made $200K+ in year one between tax savings and operational efficiency gains.
    What state are these in? That'll tell me a lot about the reassessment and abatement rules.

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  • David Schlatter
    OP
    Member since 2019 · 9 posts · 4 votes
    8mo

    Nicholas,

    You hit a lot of my thoughts and concerns. The assessor will take the new purchase into consideration but will not guarantee it to go to the new purchase price. We had that conversation already. There is the cost segregation that would be substantial. We usually do it on all our new purchases. Plus with bonus depreciation this year makes it all the better. 

    I agree 100% about the 8 single family having higher expenses. Mainly taxes and insurance plus maintenance is higher. These 8 I singled out are my lowest ROI properties. We do self manage so that helps. The 1031 is almost not possible on these. These 8 are all in a town of 900 People. If I put them up all at once I will flood the market. At this time I'm looking at selling them when they come available and using cost segregation to offset most of the gains. It will be over a couple years. Not ideal but it will help.

    However I'm back to my gut feeling and it just doesn't feel right. So it may not be the best answer but that is our current status and that could change. 

    Thanks For looking though I appreciate that.

    David

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  • G. Brian DavisPro Member
    Investor · Hatboro, PA · Member since 2016 · 3k+ posts · 886 votes
    4mo

    If I were in your shoes, I'd probably be asking the same question.

    The properties sound nice, they're in your market, and that 1% assumable loan definitely gets my attention. But you've also got enough experience to know that "nice property" and "good investment" aren't always the same thing.The thing that stands out to me is that you don't seem to be struggling with whether you can buy it. You're struggling with whether you should.

    At 90 rentals, I'd be asking what this deal does for me besides adding 24 more units. Does it meaningfully improve cash flow? Does it create operational efficiencies? Does it fit where you want your portfolio to be 5-10 years from now?

    I've seen investors get into trouble buying deals because they were available rather than because they were the best use of their capital.The 1% debt is attractive enough that I'd spend time making sure I'm not missing anything. But if the cash flow isn't there and the upside is limited, I wouldn't buy it just to increase the door count.

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  • Denise SuppleeBusiness Member
    Realtor · Willow Grove, PA · Member since 2017 · 1k+ posts · 661 votes
    4mo

    With 90 rentals and multiple storage facilities, it sounds like you have enough experience to trust your instincts.

    One thing that stood out to me is your comment that the numbers don't leave much cash flow. I've found that when experienced investors keep coming back to that concern, it's usually worth paying attention to. A beautiful property isn't always a great investment if the returns don't meet your goals.The assumable 1% financing is certainly attractive, but I'd be careful not to let favorable financing overshadow the property's long-term performance once taxes increase and the loan eventually matures.

    One question I'd ask myself is whether you're buying it for the returns or because it's a rare opportunity. Sometimes those are the same thing, and sometimes they're not.

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