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?


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.

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