First Deal - 98 Unit Apartment Deal

Investor · Memphis, TN · Member since 2016 · 56 posts · 18 votes

I recently stumbled on a apartment investment property in Memphis, TN and since this will be first deal I want to make sure my numbers are spot on in my initial analysis. Here it go.

Asking price - 3,950,000 (Assumable loan)

Year built - 1999 B property in B Area

# units - 98 (1 unit is a model, 1 unit is for a office, and 1 is for residential manager)

Gross Scheduled Income - 816,912

Gross Income - 764,700

Expenses Reported - 373,480

Debt Service - 293,389

Cash Flow - 97,831

Cap Rate - 9.9%

CoC - 16.7

Debt Coverage - 1.33

I am also looking for any information I should be aware of when dealing with assumable loan. If you need any more information, please let me know. I appreciate the feedback.

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Wendell De Guzman

Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes

10y

Originally posted by @Eric Schleif:

What are the terms of the mortgage you want to assume from the seller? When does the seller's loan mature?

I agree - this is a great question to ask. Depending on the current interest rate of the loan, it might make sense to refinance out of it if your investor-partner has great credit and experience with MF.

I am glad though that you're not afraid of a BIG deal like this. Listen to my podcast and see how I was able to get a 100+ unit apartment complex worth $6M with only $5,000 out of pocket :-)

Here's the podcast:

http://Biggerpockets.com/show65

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Andrew SyriosPro Member
Moderator
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
10y
That's quite a first deal! Do you have an operating history and rent roll on that property? With properties that large, you really want to go off or real numbers. Also, does it need any rehab?
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Armando Payano
Developer · Tampa, FL · Member since 2016 · 118 posts · 61 votes
10y
Check out Brian Burkes series on multi-family investing.
1 Reply
Wesley Wells
OP
Investor · Memphis, TN · Member since 2016 · 56 posts · 18 votes
10y
@Andrew Syrios The Gross Income, Expenses, and Debt Service are all actually numbers from 2014. I only have about 6 months of data from 2015 but if I account for the remaining 6 months of 2015 it matches 2014 (slightly more NOI but close). I am in the process of requesting the most up to date information from the seller and determining if there are any rehab cost.
0 Reply
Wesley Wells
OP
Investor · Memphis, TN · Member since 2016 · 56 posts · 18 votes
10y
@Armando Payano I will check out the multifamily investing series you mentioned. Have you tried it out as well?
0 Reply
Zachary Smith
Real Estate Agent · Johnson City, NY · Member since 2013 · 51 posts · 24 votes
10y
Looks like you're looking into a lot of important factors already. Do you have a team in place or do you plan on managing this yourself? You'll want to have done tried and true systems to have that baby running smoothly. Good luck!
1 Reply
Wesley Wells
OP
Investor · Memphis, TN · Member since 2016 · 56 posts · 18 votes
10y
@Zachary Smith I plan on utilizing a property management group for the property due to my lack of experience but I want to be hands on with everything the management company is doing. This will help improve my knowledge of the field. Once I reach a comfortable point, I will ease off a bit.
0 Reply
Andre Williams
Wholesaler · Powder Springs, GA · Member since 2015 · 25 posts · 2 votes
10y
Is it 100% occupied? Did u factor in potential vacancies?
0 Reply
Wesley Wells
OP
Investor · Memphis, TN · Member since 2016 · 56 posts · 18 votes
10y
@Andre Williams The property is not 100% occupied based on the current data that I have. It has a approximately vacancy rate of 10% and I think the vacancy rate in Memphis, TN is about 8.93%. Don't quote me 100% on the vacancy rate in Memphis.
0 Reply
Curt DavisBusiness Member
Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
10y
I am assuming from your first post your are gonna assume this property from the current owner. Don't you still have to qualify with the lender to assume this loan ? Hard to believe they will not require any type of down payment. You might be in over your head but good luck!!!
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Wesley Wells
OP
Investor · Memphis, TN · Member since 2016 · 56 posts · 18 votes
10y
@Curt Davis I have a down payment total calculated on spreadsheet using approximately 20% of the purchase price for a lender. I truly would give up on short term rewards of this property and "bird dog" this property to another experienced multifamily investor and ask to remain on the team and work with the investor throughout the process. I just honestly want the hands on experience.
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Anthony Wienke
Missoula, MT · Member since 2016 · 163 posts · 55 votes
10y
Wow, impressive for your first deal. I don't know how "assumed loans" work but best of luck to you.
Im trying to get investors in on a 23 unit my self. Don't want to use pesky high interest hard money loans.
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Wesley Wells
OP
Investor · Memphis, TN · Member since 2016 · 56 posts · 18 votes
10y
@Anthony Wienke Thanks for the good luck, I am going to need it. I hope you get all the resources needed to move forward in your 23 unit apartment deal.
1 Reply
Eric Schleif
Commercial Mortgage Underwriter / Broker · New York City, NY · Member since 2016 · 193 posts · 75 votes
10y
What are the terms of the mortgage you want to assume from the seller? When does the seller's loan mature?
1 Reply
Wendell De Guzman
Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
10y
Originally posted by @Eric Schleif:

What are the terms of the mortgage you want to assume from the seller? When does the seller's loan mature?
I agree - this is a great question to ask. Depending on the current interest rate of the loan, it might make sense to refinance out of it if your investor-partner has great credit and experience with MF.
I am glad though that you're not afraid of a BIG deal like this. Listen to my podcast and see how I was able to get a 100+ unit apartment complex worth $6M with only $5,000 out of pocket :-)
Here's the podcast:
http://Biggerpockets.com/show65
2 Reply
David Zheng
Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
10y
I'm going to play devil's advocate and warn you about how improbable this deal is...

1. first time investor? anyone with that kind of money would probably not work with a first time investor on a deal this big. you would have to fork over at least half the downpayment to show you have skin in the game. how much cash can you contribute right now?
2. If this deal really was THAT good. your investor will probably end up kicking you to the curb and just go after it themselves. cutting out a middleman means more money and less legal hassle for you.

I hope the best for you, but just be super super wary that is would be like a 2% chance of going through unless part 1 is satisfied. I understand you want hands on experience but your best chance is to join someone elses team and shadow them work instead of takng a lead role with this.
0 Reply
Zach Quick
Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
10y
@Wesley Wells Weren't you asking on another forum for advice on picking a market? Maybe that was someone else. No offense but you don't know what you don't know enough to be ready for a complex this large.
20% is on the low end for what you need initially, you have to have enough money for reserves, insurance, taxes, capex, etc...
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Derrick Craig
Memphis, TN · Member since 2013 · 969 posts · 524 votes
10y
@Wesley Wells
Congrats on the deals numbers look good to me, just worried about the assumable loan aspect of the deal, Bank will have to qualify you or whoever is looking to assume the loan.
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Wesley Wells
OP
Investor · Memphis, TN · Member since 2016 · 56 posts · 18 votes
10y
@Wendell De Guzman Thanks for the input. The assumable loan aspect worries me as a new investor. I have only heard of this once in a podcast regarding a single family home not multifamily.
0 Reply
Eric Schleif
Commercial Mortgage Underwriter / Broker · New York City, NY · Member since 2016 · 193 posts · 75 votes
10y
@Wesley Wells I'm not sure you're following the language in the loan docs correctly. There is most certainly a 1% assumption fee due to the lender it the event you decide to assume the loan. I'd imagine that you'd be responsible to pay that. When I asked about loan terms I meant what's the maturity date, interest rate, etc. Given today's rate environment it usually doesn't make sense to assume loans.
1 Reply
James Feiden
Investor · Davis Junction, IL · Member since 2015 · 10 posts · 0 votes
10y
@Wendell De Guzman On a deal this size request three years tax returns and signed YTD actuals. Also, I recommend going through the balance sheet to understand what was capex vs. expense.
Impressive deal. Good luck!
Feel free to call if you would like to discuss. I am working a similar deal myself in Illinois.
0 Reply
Wesley Wells
OP
Investor · Memphis, TN · Member since 2016 · 56 posts · 18 votes
10y
@Eric Schleif Oops I thought I provide the information. The interest rate is 4.25% and 1.5%of the unpaid balance for a assumption fee.
0 Reply
Eric Schleif
Commercial Mortgage Underwriter / Broker · New York City, NY · Member since 2016 · 193 posts · 75 votes
10y
Was the loan originated last year and it's a 10 year term? What's the UPB and current prepay?
0 Reply
Ryan Tucker
Arlington, TN · Member since 2012 · 36 posts · 10 votes
10y
@Wesley Wells I'm located in Memphis. I sell investment residential properties, mostly to out of state investors, and we also have a top notch property management service (we manage over 600 properties in the area). Let me know if I can ever be of assistance.
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Andrew SyriosPro Member
Moderator
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
10y
Originally posted by @Wesley Wells:

@Andrew Syrios The Gross Income, Expenses, and Debt Service are all actually numbers from 2014. I only have about 6 months of data from 2015 but if I account for the remaining 6 months of 2015 it matches 2014 (slightly more NOI but close). I am in the process of requesting the most up to date information from the seller and determining if there are any rehab cost.
I would definitely try to get those numbers from 2015 and 2016 so far. They may very well be trying to sell it because the property has tanked in the last year or so.
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Thomas Henson
Investor · Cincinnati, OH · Member since 2016 · 3 posts · 0 votes
10y
Hey Wes,
From a high level the numbers look solid. I was just curious on the exit strategy. How long will you be holding it?
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