Deal or Flop? 8 Unit Apartment

7 Replies

I came across what MIGHT be my first big step into apartments, however, I have 2 problems: I need a cash investor to get the deal done and I need a very experienced person to help me check my underwriting on the deal. I want to buy and hold. Asking price is $2M yet the property isn’t worth that. I am 99% sure it isn't worth that and the owner needs wants out ASAP. According to the agent, the owner is motivated and wants to move close to family across the country and doesn’t want to manage it from afar. I realize that I probably won't find an investor that will take 100% risk, but I am determined to make this happen IF it's the right deal.

Details

  • 8 units
  • Monthly rental rent: $9,085, Rent is month-to-month lease. According to agent the rents are under market/I’m currently waiting to receive feedback from a property management company regarding the current market rent and vacancy rates for property.
  • The given Cap Rate: 3.74%
  • NOI: $74,715
  • Unit Mix: 4 one bedrooms/one bath & 4 two-bedrooms/one bath
  • Exit Strategy: Refinance after reposition within 2-4 years
  • Value add potential: needs updating (bathroom & kitchen), appliances are in as is condition, needs painting, unfinished basement w/ laundry, 8+ car parking lot.
  • Exterior: stucco
  • Seems the owner pays for gas and water, tenant’s responsible for electric.

Below is my underwriting when I applied the 3.74% Cap Rate to the adjusted NOI bring the valuation of the building to $1,180M, For the expenses, I used 55% since the seller's expense came to 35%

Since it's not cash flowing, below I adjusted the purchase price to $525K as a potential cash offer:

So deal or flop?

You can go ahead and make the offer, but I wouldn't spend much more time than that. The odds a seller is going to come down from $2 million to $525,000 is extremely small, so I wouldn't spend much time on this unless he shows interest in selling around that price.

Also, as an aside, site rules prohibit requesting funding in any forum other than the marketplace. 

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based on the information you provided on the spreadsheet I would say that would be a fair price otherwise it's not worth it

Originally posted by @Ayodeji Kuponiyi :

@Andrew Syrios whoops! My mistake. The way it stands now, is my quick analysis reasonable? Is my offer price, although low, reasonable?

Looks pretty reasonable to me. Although it depends on what market cap rates are in that area. Also, are you using their actual expenses or estimating? Finally, can the rents be easily raised substantially? You want to buy off of actual numbers, but if there is an easy value add or can easily raise the rents, then you should factor that in to a degree.

@Ayodeji Kuponiyi lol there is no way the seller is going to go down to 525,000. That isnt realistic. The question isnt are you getting a deal or not. You clearly will be if that would be accepted. The question is how low would the seller go, and I suspect nothing less then 1 million. Also judging from how old these posts are I also presume that the seller declined the offer.