Your thoughts-8plex

4 Replies

Hey guys, just was looking for your thoughts on this property.  It is outside of my local area about 50 miles.

8 Unit Apartment Project constructed in 1979. The Building consists of 7-2 bedroom units and one ADA accessible 1 bedroom unit. 


Multiple units are offered fully furnished to seasonal tenants. Others are long term. Primary rental sources are National Park Service School District, and USDA Forrest Service. 


1) $400/mo 1 bdrm unit partially furnished, this lease expires at the end of October, will raise rent to $450/mo.
2) $500/mo 2 bdrm fully furnished, new lease at $550/mo started Oct 1.
3) $450/mo 2 bdrm not furnished
4) $425/mo 2 bdrm, tenant receives reduced rent to clean commons area
5) Vacant 2 bdrm
6) $450/mo 2 bdrm partially furnished, new lease at $500/mo started Sept 26th.
7) $450/mo 2 bdrm not furnished

8) $450/mo not furnished, tenant is leaving this month, will rent at $550/mo

They sent me the last 2 years taxes and the total yearly income was 19K in 2012 and 21K in 2013.

They these expenses for 2013

Advertising $74, Insurance $1824, Repairs $2234, Taxes $4457, Utilities $6848, Depreciation $1850

Rents received was $39095

This is in a very small tourist town as well.  It is all new to me so I am not sure what cap rates are normal and even if the price is good or way out of line.  You input is appreciated.

Expenses are $15,437. Depreciation counts towards taxable income but is not an expense.

Do they have management expense or self-manage? You need to budget 8-10% of gross for that even if you're going to self-manage. Say, another $4K for management.

That's $19K expenses vs 39K gross rent - right below 50% rule - let's use 55% for expenses and bump them to $21.5K. Then your net is $17.5K

If cap rate is 10% (class C) then your maximum offer is $175K.

Are there any value-add opportunities besides rent increase? Can you reduce utilities expenses or pass some of them to the tenants? 

What is the asking price?

Nick

Hey guys, thanks for the replies. Sorry I forgot the price , it is 229,000. They also have approx $200/month from the coin op laundry machines. Does CAP vary for the class of property? If so by how much? And yeah I figure class C. I think it was self managed as well. They advertise it as 90% occupancy. Might have one unit vacant.

Welcome to BP. 

What about reserves (cap ex)? You will need to allocate a number for that as well. Cap rates strictly marker driven. There is no one universal cap rate. Having said that a range of 8-12% cap rate is very common. 

Hope it helps.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here