Need help analyzing apartment/commercial building.

1 Reply

I looked at a building tonight and wanted an opinion on what others think. Or best way to value the deal. It's a building with 2 commercial businesses in the lower level that rent one for $450 a month the other is only open 3months a year and only pay $1800 a year as well as one apartment three bed 2 1/2 bath 1700 ft.² but then there is eight apartments upstairs all one bedrooms but only three are rented out at 300 per month and one is 200 per month all the other units need remodeled before they are able to be rentable just trying to find the best way to do the numbers on this project The lady has had the building for about 30 years and she does month to month leases so it's hard to go off of income per year as well as expenses any help is appreciated I have more numbers for sizes of stuff if needed to help analyze this project

Hi Patrick,

You might have hit upon a very exciting opportunity. Without hearing about the asking price or what you think of the neighborhood, it is difficult to say how promising this investment could be. 

But if I were you, I'd start by checking out the vacancy rates in the neighborhood. The owner currently has 5 vacant apartments and a seasonal commercial rental(call it 5.75 vacancies?) out of 11 units. Any way you cut it, that's over 50% vacancy.

If the vacancy rate in the neighborhood is under 10%(or thereabouts,) then it would appear that the building is being run incorrectly. If you can get it for the right price(meaning some price which reasonably reflects its poor state of operations,) rehab it cost-effectively, and bring it to full occupancy, there may be substantial upside for you. Deals like this one have worked out very well for me.

On the other hand, if the vacancy rate of the neighborhood is around 50%, then the problem isn't the building, it's the neighborhood.

Good luck with it,

Michael

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