Buying a Small Apartment Complex

[Mark Basinger]

Hello: I have an opportunity to acquire a 24 Unit Apartment Complex for a price $2,500,000

Income: $21,181 /Month

Expenses: Water, trash and sewer is $1,375 / month

Electric, $300 / month Alarm, 100 / month Phone, $50 / month Taxes, $5,700 land and $15,400 improvements Wear and tear, maintenance, $650/month Insurance $500/Month

Cap Rate 8.9%

Option 2:

Acquire the adjoining lots for $2,000,000 for 2.5 Additional Acres for Development of up to 70 units.

Looks like cap rate are 8.9

Can you provide your thoughts on these two deals?

Thanks.

Mark

[Logan Hassinger]

@Mark Basinger

There's a number of things that go into this end result, but I've essentially built a table that summarizes that at a specific average rent for a property, what I would be willing to pay on a per unit basis. 

In this example, at rents of $880/unit, I should be looking to spend $60k/unit to obtain returns that I'm comfortable with. 

The original model consists of normal OpEx along with CapEx reserves and factors the typical debt service (commercial notes). I've broken each component down to a per unit costs. Then work backwards in to the price.