Help analyzing this 6 unit apartment building

4 Replies

Hey guys,

I am looking at this 6 unit apartment building here in Norfolk, VA and just want to see what you guys think of these numbers. I wouldn't say she is super motivated but it still seems like this could be a pretty good deal. If I can not find a way to buy it I want to be able to wholesale it or just get a birddogg fee. Either way I still want to get the numbers right so this is what I got:

6 1/1 units @ $600/m each so  $3600/m altogether and $43,200/yr gross

Cost

5% vacancy= $180 building sits on a busy road and close to a busy intersection. 

6%repairs= $216

4% Capex= $144

Taxes= $263.35/m $901.98/q $3,160/yr

management @ 10%= $360/m

water= $450/m

Insurance= $60/m

total expenses= $1,313.35/m $1,5760.20/yr

NOI= $2,286.65/m $27,439.80/yr

Price= 245k

Which would put me at a 11% cap rate.

The market in that area for 1/1s is between 580-715/m with most being around $650 so it's sitting close to the bottom. 

The landlord pays water but if you separate meters and make the tenants pay water then there is a chance to increase income by $400-500/m. 

There is also a laundry room in the back that the owner says tenants used but she closed it and used it for storage because she needed somewhere to store supplies. So there is another opportunity to add extra income if you add coin wash machines. I honestly though I would split meters make them pay water and then offer free washing in the back just to entice people.

Now I haven't seen the inside of the units yet which I know I  must do but this seems good to me. Is there anything you guys can see that I'm missing or screwing up. Especially you guys that know the Hampton Roads area. Please let me know if I'm crazy with some of these percentages or something.

Thanks 

I'd up the vacancy to 8% and repairs to 8-10% depending on the buildings age/condition.  Better to over estimate than under.

Gary,

I think you have a solid investment opportunity but I would increase CAPEX to at least 6%. Vacancy in the tidewater area is at least 6% unless you have a great property that is easy to lease. I think your insurance will be much higher than $60 per month for all six units. I would recommend increasing all your liabilities by 2-3% (except management), if the deal still brings you at lease 10% cash flow monthly then go for it. Good Luck and move forward towards wealth, one calculated step at a time.

Has she provided any costs yet?  If so double whatever she said it cost.  If you move forward verify with copies of her returns.

That said the price to income looks good.  However most of the multi's in Norfolk are at least 20 years old so I believe your repairs and capex should be higher.  I assume 10% repairs and 5% capex until I get documentation from the previous owners.  Are all the units rented currently?  Being on busy road might not be a plus either if it is Tidewater or Chesapeake.  

I currently have SFHs that cost $50/month for insurance.  Also if you are too close to the water here it can disqualify you from most insurance companies and you will need flood.  

Last the vacancy is a bit low even if your rents are bit low which it looks like they are. Maybe 10%  

@Gary Alford

You might want to consider at least 8 units if you are going to use commercial lending.

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