One Street, 3 Buildings, 8 Total Units - Let's Analyze Together

7 Replies

Dear Friends, 

I wish everyone is stellar. I'm looking at three properties packaged together in one Street. They are located in Baltimore, Maryland. The three properties combined have eight total units which are 100% occupied. There is no value add here as all properties have been gut renovated in the years 2014, 2016 and 2017. The appliances are stainless steel, the units have hardwood etc... It's more of a turnkey deal. Attached you can see the Property Details, NOI, Three Year Cash Flow and Rent Roll. The asking price is $1,100,000. Below are my questions. If you have some questions for me or thoughts aside from the questions, please do share.

1. Investors in Baltimore Maryland, what is "CHAP TAX CREDIT"? It's only applied to one of the three buildings and how come the other two don't get it? By getting this Credit, are there any obligations to put forward? 

2. The building is very old from 1880. What do I need to watch out for? 

3. What is an accurate Management Fee Percentage for such building in Baltimore, Maryland. Their assessment is based on 6%. 

4. What would be accurate Vacancy % in Baltimore Maryland. Currently they are at 5%. 

5. Given there is no value add, it's simply as if I'm buying a "bond" in terms of the return. Tax assessment is only $429K as well. What would you offer for it to be worth your while? 

op ex seem so low, not sure why mgmt is subtracted from expenses?

Don't see a reserves line, or pest control, any landscaping to tend to or sewer fees?

What is sold comps cap rate?

Originally posted by @Will G. :

op ex seem so low, not sure why mgmt is subtracted from expenses?

Don't see a reserves line, or pest control, any landscaping to tend to or sewer fees?

What is sold comps cap rate?

From my understanding, the 3 buildings have been self managed by the property owner. I asked the agent why the Property Management Fees was subtracted and not added. Awaiting their response. Adding it as an addition to the expense, it looks like overall expense is at 20%. As far as comps, there are currently 55 Multi Family buildings for sale on Loopnet, Crexi etc... They all seem to be trading around the same price. 

20% expenses would be a dream if real! Any multi appraisals i have had done include a management expense typically 8%, they also include a reserves line, sometimes .10 cents to .30 cents per sq ft or a percent of gross, 2- 6 %. On a building that old I would want to plug in 4% reserves at a minimum. 

What you need is the solds cap rate, take the gross, subtract out 35%(probably more reasonable expense) and divide noi by cap rate, so hypothetical $77k of noi @ 7 cap is around 1.1m if 7 is your cap rate?

Loopnet does post some solds and you can see list price cap rates for your area. If 7 is close offer $1020

Originally posted by @Will G. :

20% expenses would be a dream if real! Any multi appraisals i have had done include a management expense typically 8%, they also include a reserves line, sometimes .10 cents to .30 cents per sq ft or a percent of gross, 2- 6 %. On a building that old I would want to plug in 4% reserves at a minimum. 

What you need is the solds cap rate, take the gross, subtract out 35%(probably more reasonable expense) and divide noi by cap rate, so hypothetical $77k of noi @ 7 cap is around 1.1m if 7 is your cap rate?

Loopnet does post some solds and you can see list price cap rates for your area. If 7 is close offer $1020

I would have to agree 100%. I typically multiply Gross Income by 40%-45% for the expenses to be on the super conservative side. I love to get a property with a clean 10% cap rate. I'm certain there are out there, however everything in Virginia, Maryland and Washington DC usually trades around 6-7% Cap Rate. By the time you plug in the real numbers, that's what I see them go under contract at. It's more like buying a Bond at these rates. You may also buy stressed multi-family buildings in cash, do a full gut renovation, lease up then get a loan on it. 

Aside from Tax Expenses, Insurance, and Management fee what else would you look for to add into the expenses? What would be the Top 10-15 expenses to always include in a Multi Family? Looks like this building is fully metered separately so the Utilities are on the tenants. 

taxes, insurance,repairs and maint, management,vacancy, bad debt, evictions, utilities, snow removal, landscaping, pest control, capitol expenditures, licencing, any municipality required inspections, corporate entity expenses and annual reports, and thats all i can think of.

Maybe don't think of this like a bond because you are purchasing risk as well as an asset, and should not be taken lightly! Another expense... 3 million dollar umbrella to mitigate some risk!

Originally posted by @Will G. :

taxes, insurance,repairs and maint, management,vacancy, bad debt, evictions, utilities, snow removal, landscaping, pest control, capitol expenditures, licencing, any municipality required inspections, corporate entity expenses and annual reports, and thats all i can think of.

Maybe don't think of this like a bond because you are purchasing risk as well as an asset, and should not be taken lightly! Another expense... 3 million dollar umbrella to mitigate some risk!

Spoke with a Property Management company and they advised to increase Property Management Expense to 9% and include 8% for vacancy. Awaiting on the Insurance quote and the Property Manager and Insurance people like the location. With the extra fees, the expenses now represent 35%. Once I plug all of it in, I'll see what it'll really cash flow at. 

Good move talking to p.m. co. 

is your prospect really wood framed? is there any extra steps needed for termite control? 

I have heard some florida cities mandating periodic "safety" inspections on structures of a certain age.

anything like that there?