Houston 14-Unit – Investors: Underwriting
Member since 2021 · 25 posts · 3 votes
I’m analyzing a 14-unit apartment deal in Houston (77016 area) and trying to dial in the numbers before submitting an offer.
Curious where experienced multifamily investors would need to be price-wise.
Here are the basics:
• 14 units (2 bed / 1 bath)
• Built around 1960
• 13 occupied
• Avg rents about $1,108/mo
• Market rents estimated ~$1,350+
• Gross scheduled rent: $186k
• NOI: ~$135k (per T12)
Expenses roughly:
• Taxes ~ $14k
• Insurance ~ $25k
• Water ~ $6k (owner pays)
• Other operating expenses bring total to ~$51k
Other notes:
• Roof reportedly <5 years old
• Tenants pay electric
• Landlord pays water
• Some units lightly updated
Seems like there is rent upside if brought to market rents.
For investors who buy smaller multifamily in Houston:
Where would you need the price to be for this to make sense?
Trying to understand how buyers are underwriting deals like this right now.
Being built around 1960, you need to look hard at the mechanicals. Unless systems have had a complete replacement, maintenance and repairs will be ongoing, and costly. It's great that the roof is less than 5, but how many layers are there? Have you, or will you, prior to commitment, closely inspected every unit for any signs of water intrusion or wood destroying insects?
Time and time again on these forums we see investors that did not budget properly. I'm guessing you have the same 20/20 vision as most, the difference is, YOU are the one that has to close the budget gap if something is missed.
I’m analyzing a 14-unit apartment deal in Houston (77016 area) and trying to dial in the numbers before submitting an offer.
Curious where experienced multifamily investors would need to be price-wise.
Here are the basics:
• 14 units (2 bed / 1 bath)
• Built around 1960
• 13 occupied
• Avg rents about $1,108/mo
• Market rents estimated ~$1,350+
• Gross scheduled rent: $186k
• NOI: ~$135k (per T12)
Expenses roughly:
• Taxes ~ $14k
• Insurance ~ $25k
• Water ~ $6k (owner pays)
• Other operating expenses bring total to ~$51k
Other notes:
• Roof reportedly <5 years old
• Tenants pay electric
• Landlord pays water
• Some units lightly updated
Seems like there is rent upside if brought to market rents.
For investors who buy smaller multifamily in Houston:
Where would you need the price to be for this to make sense?
Trying to understand how buyers are underwriting deals like this right now.
Hey @Donald Lee Reed, welcome to the BP Forum! Do any of the units still need to be rehabbed to achieve market rents? How would you grade the neighborhood in terms of A-D? And how much of a down payment are you able (do you want) to put down on the deal?
Appreciate the questions.
From what I can tell so far, some units have already had light upgrades but others likely need minor updates to achieve market rents. Nothing appears to be a heavy reposition, more of a gradual rent push situation.
I’d probably classify the area as C / workforce housing.
I’m still analyzing the deal and speaking with partners to determine the right structure, which is part of why I’m trying to understand where investors would need pricing to land.
From your experience, where would you typically need a deal like this to price in order to make sense?
Appreciate the questions.
From what I can tell so far, some units have already had light upgrades but others likely need minor updates to achieve market rents. Nothing appears to be a heavy reposition, more of a gradual rent push situation.
I’d probably classify the area as C / workforce housing.
I’m still analyzing the deal and speaking with partners to determine the right structure, which is part of why I’m trying to understand where investors would need pricing to land.
From your experience, where would you typically need a deal like this to price in order to make sense?
@Donald Lee Reed What kind of lender are you looking to finance the property? A local bank?
Still evaluating financing options. Likely either a local bank or partner equity depending on where pricing lands. Right now I'm mainly trying to understand where experienced buyers would need this to be price-wise.
Still evaluating financing options. Likely either a local bank or partner equity depending on where pricing lands. Right now I'm mainly trying to understand where experienced buyers would need this to be price-wise.
@Donald Lee Reed What level of of financial return (IRR, ROI, Cash on Cash, etc.) are you targeting for your partners?
I’m mainly evaluating it from a cap rate and value-add perspective first. Given the age and area I’d expect investors to target something around a 10–11 cap on current numbers with upside through rent increases.
I’m still trying to determine where buyers would need pricing to land.
I’m mainly evaluating it from a cap rate and value-add perspective first. Given the age and area I’d expect investors to target something around a 10–11 cap on current numbers with upside through rent increases.
I’m still trying to determine where buyers would need pricing to land.
@Donald Lee Reed Do you mean 10%-11% cap rate on current numbers?
@Jaycee Greene Yes
@Donald Lee Reed How many of the units are Section 8?
@Jaycee Greene Yes
@Donald Lee Reed Assuming the rehab cost would not exceed 10% of the purchase price, I suspect you can offer as much as $1.35M and still generate an IRR of at least 20%. FYI, I didn't see any Property Management expense in the operating expenses (unless one of the units is vacant if the PM lives on site). I recommend adding those to your underwriting as well as increasing the taxes. Good luck!
Being built around 1960, you need to look hard at the mechanicals. Unless systems have had a complete replacement, maintenance and repairs will be ongoing, and costly. It's great that the roof is less than 5, but how many layers are there? Have you, or will you, prior to commitment, closely inspected every unit for any signs of water intrusion or wood destroying insects?
Time and time again on these forums we see investors that did not budget properly. I'm guessing you have the same 20/20 vision as most, the difference is, YOU are the one that has to close the budget gap if something is missed.
Sellers in this range are often anchored to the T12 NOI at face value, which would imply a ~$1.5M ask at a 9 cap, that's the gap you'll need to bridge in negotiation.
A serious buyer underwrites this at $950k–$1.05M and models a 3–5 year hold with a stabilized exit. At current rates (assuming ~70% LTV on a 7–7.5% agency or local bank loan), you'd be looking at DSCR around 1.1–1.2x at purchase, improving as rents are pushed.
If the seller is priced meaningfully above $1.1M, you need either very clean due diligence (no deferred maintenance surprises) or concessions at closing to make the risk-adjusted return work.
Houston 14-Unit at $135K NOI: Why the Seller's Number Is Wrong and How to Underwrite This Deal for Real
TL;DR: A 14-unit in Houston's 77016 zip code with $135K in reported NOI looks like a solid deal at first glance. It's not — because the NOI is missing property management, the 1960 construction is hiding a six-figure plumbing liability, and the insurance cost is about to get worse. The seller will anchor at $1.35-1.5M. The real number is $950K-$1.05M. Here's the full underwriting and why every line item matters.
The Deal as Presented
An investor posted a 14-unit property in Houston's 77016 area asking where experienced multifamily buyers would need pricing to land. The thread drew 12 replies — including one
suggesting a $1.35M offer could work, and another landing at $950K-$1.05M. That's a $400K spread. The difference between those numbers is whether you're underwriting the broker's story or the property's reality.
Here's what the listing shows:
┌───────────────────────┬──────────────────────────────┐
│ Metric │ Seller's Numbers │
├───────────────────────┼──────────────────────────────┤
│ Units │ 14 (all 2BR/1BA) │
├───────────────────────┼──────────────────────────────┤
│ Built │ ~1960 │
├───────────────────────┼──────────────────────────────┤
│ Occupancy │ 13 of 14 (93%) │
├───────────────────────┼──────────────────────────────┤
│ Average rent │ $1,108/month │
├───────────────────────┼──────────────────────────────┤
│ Market rent estimate │ $1,350+/month │
├───────────────────────┼──────────────────────────────┤
│ Gross scheduled rent │ $186,000/year │
├───────────────────────┼──────────────────────────────┤
│ Reported NOI │ ~$135,000 │
├───────────────────────┼──────────────────────────────┤
│ Operating expenses │ ~$51,000 │
├───────────────────────┼──────────────────────────────┤
│ Taxes │ $14,000 │
├───────────────────────┼──────────────────────────────┤
│ Insurance │ $25,000 │
├───────────────────────┼──────────────────────────────┤
│ Water (landlord-paid) │ $6,000 │
├───────────────────────┼──────────────────────────────┤
│ Neighborhood │ C / workforce housing │
├───────────────────────┼──────────────────────────────┤
│ Roof │ "Reportedly <5 years old" │
├───────────────────────┼──────────────────────────────┤
│ Unit condition │ "Some units lightly updated" │
├───────────────────────┼──────────────────────────────┤
│ Financing approach │ Local bank or partner equity │
├───────────────────────┼──────────────────────────────┤
│ Buyer's cap target │ 10-11% on current numbers │
└───────────────────────┴──────────────────────────────┘
Problem #1: The Missing Property Management Fee
One of the experienced contributors in the thread flagged it: there's no property management expense in the operating expenses. On a 14-unit C-class property in Houston, you're either managing it yourself (and your time has a cost) or paying someone 7-8% of collected rent.
The correction:
┌──────────────────────────┬───────────────────┬───────────┐
│ │ Seller's Expenses │ Corrected │
├──────────────────────────┼───────────────────┼───────────┤
│ Taxes │ $14,000 │ $14,000 │
├──────────────────────────┼───────────────────┼───────────┤
│ Insurance │ $25,000 │ $25,000 │
├──────────────────────────┼───────────────────┼───────────┤
│ Water │ $6,000 │ $6,000 │
├──────────────────────────┼───────────────────┼───────────┤
│ Other operating │ $6,000 │ $6,000 │
├──────────────────────────┼───────────────────┼───────────┤
│ Property management (8%) │ $0 │ $14,880 │
├──────────────────────────┼───────────────────┼───────────┤
│ Total expenses │ $51,000 │ $65,880 │
├──────────────────────────┼───────────────────┼───────────┤
│ NOI │ $135,000 │ $120,120 │
└──────────────────────────┴───────────────────┴───────────┘
That missing PM fee drops NOI by $15K. At a 10-cap, that's a $150,000 difference in property value. At a 7-cap, it's $214,000.
Even if you plan to self-manage, always underwrite with PM included. Your time is worth something. And if you ever need to step away — health issue, second property, life happens — you need to know the deal survives with a manager in place.
The thread contributor who suggested $1.35M and 20%+ IRR acknowledged the missing PM but didn't quantify the impact. The impact is significant.
Problem #2: The 1960 Construction Time Bomb
The most-upvoted reply in the thread — from a contributor with 2,488 posts and 1,661 votes — warned about mechanicals on a 1960 build. He's right. But the warning needs specifics, because "maintenance will be costly" doesn't help you underwrite. Here's what 26 years of managing properties this age has taught me:
Cast iron plumbing. Buildings from 1960 almost universally have cast iron drain lines. Cast iron has a 50-60 year lifespan. At 66 years, these pipes are at or past end-of-life. Symptoms:
slow drains, sewage backups, bellied pipes underground. A full repipe on a 14-unit building runs $80,000-$140,000 depending on access and layout.
Under the slab repipe is the worst case. If the cast iron runs under the concrete slab (common in 1960s Texas construction), you're looking at tunneling or rerouting through the attic.
Either way, it's expensive and disruptive — tenants may need to be temporarily relocated during the work.
Electrical. 1960 Houston construction often has a mix of original wiring. If any units still have Federal Pacific or Zinsco panels (common in that era), those need immediate replacement
— they're known fire hazards and most insurers won't cover them. Panel replacement: $1,500-2,500 per unit.
Galvanized supply lines. If the water supply lines are original galvanized steel, they're corroding from the inside. Reduced water pressure, rust-colored water, and eventual pinhole leaks. Full supply line replacement: $3,000-5,000 per unit.
The capex reality check:
┌─────────────────────────────────────┬──────────────────────┬───────────────────┬───────────┐
│ System │ Age Risk │ Estimated Cost │ Timeline │
├─────────────────────────────────────┼──────────────────────┼───────────────────┼───────────┤
│ Cast iron drain lines │ CRITICAL (66 years) │ $80,000-$140,000 │ Years 1-3 │
├─────────────────────────────────────┼──────────────────────┼───────────────────┼───────────┤
│ Electrical panels (if FPE/Zinsco) │ HIGH │ $21,000-$35,000 │ Year 1 │
├─────────────────────────────────────┼──────────────────────┼───────────────────┼───────────┤
│ Galvanized supply lines │ MODERATE-HIGH │ $42,000-$70,000 │ Years 1-5 │
├─────────────────────────────────────┼──────────────────────┼───────────────────┼───────────┤
│ HVAC (14 units, likely window/PTAC) │ MODERATE │ $28,000-$56,000 │ Ongoing │
├─────────────────────────────────────┼──────────────────────┼───────────────────┼───────────┤
│ Roof (reportedly <5 yrs) │ LOW (verify permits) │ $0 if true │ N/A │
├─────────────────────────────────────┼──────────────────────┼───────────────────┼───────────┤
│ Total potential capex │ │ $171,000-$301,000 │ │
└─────────────────────────────────────┴──────────────────────┴───────────────────┴───────────┘
The experienced contributor's question — "how many layers are there?" on the roof — is the right question. Pull City of Houston permits. If there's no roofing permit on file in the last 5 years, the "new roof" claim needs documentation. Multiple layers means the next roof replacement requires a full tear-off, which doubles the cost.
Before you offer: Get a sewer scope on the main lines ($300-500). If you see cast iron deterioration, that's your biggest negotiating lever — and it could take $100K+ off the price.
Problem #3: Insurance at $25K and Climbing $25,000/year for insurance on a 14-unit, 1960-built property in Houston 77016 is already steep — and it's going to get worse. Houston-area property insurance has increased 20-40% over the past three years driven by hurricane exposure, hail claims, and aging building stock.
A 66-year-old building in a flood-adjacent zip code is exactly the risk profile insurers are repricing. Budget $30,000-$35,000/year for insurance within 2-3 years. That's another $5,000-$10,000 hit to NOI that the trailing financials won't show.
Also verify: is the property in a FEMA flood zone? 77016 has areas that flooded during Harvey. If flood insurance is required (or should be carried), that's an additional $3,000-8,000/year not in the current expenses.
Problem #4: The 77016 Rent Ceiling and Section 8 Question
One contributor asked how many units are Section 8. Smart question — because it changes the underwriting in two ways:
If some units are Section 8: Rents are set by the Housing Authority's Fair Market Rent (FMR) for the area. Houston's 2026 FMR for a 2BR is approximately $1,250-$1,350. That aligns with the "market rent" estimate — meaning the upside may already be capped by HUD payment standards. However, Section 8 tenants typically have lower turnover (they don't want to lose their voucher), which reduces vacancy and turnover costs.
If no units are Section 8: The rent upside is real but capped by the neighborhood. 77016 is C-class workforce housing. Market rents of $1,350+ are achievable post-renovation, but this isn't a neighborhood where you push to $1,500. The tenant pool at $1,350 in 77016 is different from the tenant pool at $1,350 in the Heights or Montrose. Screen aggressively, budget for higher collection loss.
The operational reality for Class C Houston: Budget 25-30% annual turnover. At $2,500-3,500 per turn, that's 3-4 turns per year = $7,500-$14,000 in additional annual cost. Budget 5-8% collection loss on effective gross income. These are costs that don't appear in a T12 from a seller who self-manages and doesn't track them.
The Corrected Underwriting
┌─────────────────────────────────────────┬────────────────────┬────────────────────┐
│ Line Item │ Seller's Pro Forma │ Corrected (Year 1) │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Gross Scheduled Rent (14 × $1,108 × 12) │ $186,000 │ $186,000 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Vacancy (7%) │ -$13,020 │ -$13,020 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Collection loss (6%) │ $0 │ -$11,160 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Effective Gross Income │ $172,980 │ $161,820 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Taxes │ -$14,000 │ -$14,000 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Insurance │ -$25,000 │ -$28,000 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Water │ -$6,000 │ -$6,000 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Repairs/maintenance ($800/unit) │ -$6,000 │ -$11,200 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Property management (8%) │ $0 │ -$12,946 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Turnover (3 units/year) │ $0 │ -$9,000 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Admin/legal/misc │ $0 │ -$3,000 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ Total Operating Expenses │ -$51,000 │ -$84,146 │
├─────────────────────────────────────────┼────────────────────┼────────────────────┤
│ NOI │ $135,000 │ $77,674 │
└─────────────────────────────────────────┴────────────────────┴────────────────────┘
The seller's $135K NOI becomes $77,674 when you underwrite like an operator instead of a broker.
What This Property Is Actually Worth
Donald said he'd expect buyers to target a 10-11% cap on current numbers. Let's test both the seller's NOI and the corrected NOI:
┌──────────────────────────────────────────┬──────────┬──────────┬────────────┐
│ Scenario │ NOI │ Cap Rate │ Value │
├──────────────────────────────────────────┼──────────┼──────────┼────────────┤
│ Seller's numbers at seller's cap (9%) │ $135,000 │ 9% │ $1,500,000 │
├──────────────────────────────────────────┼──────────┼──────────┼────────────┤
│ Seller's numbers at buyer's target (10%) │ $135,000 │ 10% │ $1,350,000 │
├──────────────────────────────────────────┼──────────┼──────────┼────────────┤
│ Corrected NOI at 10-cap │ $77,674 │ 10% │ $776,740 │
├──────────────────────────────────────────┼──────────┼──────────┼────────────┤
│ Corrected NOI at 8-cap │ $77,674 │ 8% │ $970,925 │
├──────────────────────────────────────────┼──────────┼──────────┼────────────┤
│ Corrected NOI at 7.5-cap │ $77,674 │ 7.5% │ $1,035,653 │
└──────────────────────────────────────────┴──────────┴──────────┴────────────┘
The thread contributor who said $950K-$1.05M is the closest to reality. At those numbers, using corrected NOI, you're buying at a 7.5-8% cap — reasonable for a C-class value-add in
Houston with significant rent upside.
At $1M purchase with 25% down ($250K), a commercial loan at 7.5% on $750K (25-year amortization):
┌──────────────────────────────────┬──────────────┐
│ Metric │ Value │
├──────────────────────────────────┼──────────────┤
│ Annual debt service │ $66,660 │
├──────────────────────────────────┼──────────────┤
│ Cash flow (corrected NOI - debt) │ $11,014/year │
├──────────────────────────────────┼──────────────┤
│ Cash-on-cash return │ 4.4% │
├──────────────────────────────────┼──────────────┤
│ DSCR │ 1.17 │
└──────────────────────────────────┴──────────────┘
Thin in year one. But that's before the value-add.
The Value-Add Math
Bump rents from $1,108 to $1,300 over 18 months (realistic for 77016 with light updates at $3,000-5,000 per unit). New corrected NOI jumps to approximately $100,000. Cash flow doubles.
DSCR hits 1.50. And the property reappraised at an 8-cap is now worth $1.25M on your $250K equity — a 25% equity gain in under two years.
The Tax Play That Makes Year One Work
Under IRC §168, the depreciable basis on a $1M purchase (80% improvement = $800K) generates $29,091/year in straight-line depreciation. Run a cost segregation study on a 1960 building
and you'll reclassify $150K-$200K into 5, 7, and 15-year property. At 60% bonus depreciation (2026 rate under IRC §168(k)), that's $90K-$120K in accelerated depreciation in year one.
If you're in the 32% tax bracket, that cost seg saves you $28,800-$38,400 in year-one taxes for a study that costs $5,000-$8,000.
The tax + operations compound: Use the tax savings to fund the first wave of unit renovations → renovated units command $1,300 rent → higher rent = higher NOI → higher NOI = higher
property value → refinance at the higher value → pull out renovation capital tax-free. The tax code finances the value-add. That's the cross-domain play nobody in the thread mentioned.
What to Do Before You Offer
1. Sewer scope the main lines ($300-500). If cast iron is deteriorated, that's $100K+ in negotiating leverage.
2. Pull City of Houston permits. Verify the roof. Check for any permitted renovations on electrical, plumbing, HVAC.
3. Get an insurance quote now. Don't wait until due diligence. If the quote comes back at $32K+ (likely), that changes your NOI.
4. Ask about Section 8 tenants. It changes the rent upside calculation and the turnover model.
5. Inspect every electrical panel. FPE or Zinsco = immediate replacement. Non-negotiable.
6. Underwrite at $77K NOI, not $135K. Then model the rent bump. If the deal works at corrected numbers with upside, it's real. If it only works at the seller's numbers, it's not.
Bottom Line
This Houston 14-unit is a real deal at the right price. The right price is $950K-$1.05M, not $1.35-1.5M.
The seller's $135K NOI is overstated by $57K when you add PM, turnover, collection loss, and realistic maintenance. The 1960 construction has $170K-$300K in potential deferred capex.
Insurance is going up. But the $242/unit rent gap is real value-add, and a cost segregation study makes the thin year-one cash flow survivable while you execute the rent bump.
At $1M with an 18-month value-add, this property stabilizes at $100K NOI with a $1.25M appraisal. That's the deal. Just don't pay the seller's price to get there.
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Nick Cokas | 26 years in enterprise property management | Yardi Consultant | 47+ enterprise migrations | 300+ financial and operational reports for property managers