10 Unit Apartment

10 Replies

I'm looking at a 10 unit apartment in a small town. This is the first deal I've looked at so I'm not sure if this looks way off or not. 

It's two 2500 sq foot buildings. I have yet to see the inside but the average size works out to 500 sq foot units so these are pretty small. 

The flyer the owner sent has this listed for monthly expenses.
$ 25 Grass/Snow
34 Trash Pickup
376 Heat Bill Total Both Buildings (Averaged over 12 months)
75 Electric Total Both Building (outside lighting, furnace motors, sumps averaged over 12 months)
539 Water Bill
65 Insurance ($100K Liability Policy Only, Auto Owners)
300 Taxes
250 Cleaning/Maintenance/Repair

$1664 Total Reoccurring Expenses

Current Monthly Income From 10 units $3950 @ $395 per month per unit

Difference Between Monthly Income and Reoccurring Expenses: $3950 – 1664 = $2286 net

He included a tax bill from 2013 that has the tax assessment listed as $56,000. The asking price is $169,000. I'm working on making a spread sheet I saw in another discussion to evaluate better but does this send up red flags for any of you? 

If your net operating income calculation is right, that sales price works out to a 16.2% cap rate. That cap rate is so good it makes me think the property is in a D location, has a lot of deferred maintenance, has terrible tenants, and low prospects of raising rents. If I'm wrong about all of those and it is clear that you can increase rents and get good tenants soon after purchase and sustain increased rents over a long period of time, then this property may be a good deal. You might get it under contract with an option period and do a crazy amount of due diligence before closing the deal.

The expenses seem quite low to me. They should be much closer to 50% +. Notice they left out Management, Vacancy rate, capital reserves and turnover cost. The 4 biggest expenses you will have. 

That rent to value is crazy high.  Only in Michigan, apparently!

Those kind of cap rates aren't unheard of in Michigan, but it definitely depends on the area. At the moment, there's a ton of investor activity (at least where I am), so I'd be very surprised that a multifamily unit like that doesn't have considerable activity on it.

I'm in Oakland County (southeast, MI). Where is the property? Sanilac? 

I'd definitely look at any deferred maintenance and check what they're assuming for capex.  

Is that the one in Oscoda? Just fyi we vacation there every year, and it appears that town is not exactly booming. If not, ignore my response. Good luck to you though!

@Tommy Desmond @Lee Van Every It's in Huron county. I won't have more information until tomorrow. One of the things I'm confused about is that the property map I got shows the city / township line running right through the property. I'm not sure what that does for tax purposes. 

I haven't dealt with that personally, but my first stop would be to speak with the assessor in each city to see what they have to say. 

Don't forget to get a real number for the insurance.

Originally posted by @Brad Carrier :

The cap rate for the aparment (based on the numbers here), seems to be 16.23% and expenses somwhat low. You want to look into what the cap rate of a similar investment in the area is and what your cash flow may be if you are aware of what your mortgage rate/payment is.

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