[Calc Review] 14 unit Please help me analyze this deal

4 Replies

Hey, 

I am a realtor here in Chattanooga TN and I am new to partnerships and multi - units, but no stranger to rental property or management. I have had my eye on a deal here for quite some time and the numbers are there, but I am confused as to why no one has scooped this one up yet. Please help me see what I am missing here. 

This is a 14 unit flip that was purchased in January 2017 for $420k cash by 7 investors. They put a little bit of money into it painting exterior, upgrading window units and renovating a few units to be able to raise the rents. They refinanced in March of 2017 to pull out their initial investment so the work paid off with the appraisal. 

Items still of major concern. Some fascia around the roof and some soffit is missing. A few holes in the vinyl siding. The driveway and parking lot needs major work. Tons of cracking and pot holes and patching. Needs to be totally redone. The units have crapy old wooden doors that were painted, but should of been replaced. A good bit of unsightly old retaining walls holding back the hill from the sidewalk in front of the apt complex. About half of the window units were replaced and the others are still in working order. The units are smaller and only 8 of the 14 have laundry hook ups. All of the units have original single pane aluminum windows. The heat source appears to be a single electric quartz heater in the wall in each unit. The 14 units are made up of 2 buildings. A 6 unit and an 8 unit. One of them has a crawlspace where tons of old junk has been stashed and several old electric water heaters are rusting away. 1 area that had a bathroom leak and the floor was repaired and some supports added but would need to be redone. Definitely not done correctly. Depending on the cost of driveway and parking lot I would easily estimate repairs $20-50k to get this complex to turn key condition. To add laundry to the other units I don't believe the space will allow in the unit, but possibly adding a solution in the crawlspace which is tall enough to stand or adding a 3rd small building with it's own split unit for heat and air. Could put some coin laundry in there for the other tenants. Is this better and would it pay off?

The average rent in the area is around $750 for a 1/1, but the condition is really hurting the appeal. 13 of the 14 units are currently rented. I spoke to a tenant and she like the place and didn't have any complaints about price or quality which was surprising. When fully occupied the complex brings in $7490 which is $535/unit. They just filled a unit for $575 with laundry in its present condition. 

I have already secured partners with the needed cash in order to move forward, however we would like to hear your opinions on this deal. It has been on the market for 170+ days and it has a good cap rate. It is in a good area. It is still in need of some upgrades but at a great cost. If we could get the rents up to $650/unit this would greatly help the value. BRRRR or flip this within a year.

What should we be thinking about as far as drafting a partnership agreement?

Should we do this under an LLC or some other entity?

Are there any items in my report that are way off or I am over looking?

What would you do?

Any advise is much appreciated. Thanks

View report

*This link comes directly from our calculators, based on information input by the member who posted.

I know that property well, I almost purchased it before the current investor did but decided to pass on it. I do think it has potential and it is in a decent area. Apartment sales in the area have slowed down because the cap rates are getting compressed by the raising interest rates but sellers aren’t interested in raising the cap rates yet. So most things are sitting now until higher cap rates make the financing work. 

It looks like you have done a good job assessing so you probably have a good understanding of at what purchase price the deal would work at. I would just caution you to not plan on such a large rent increase because it’s not an apartment complex that is going to attract higher end clientele. You could make it supper nice but that doesn’t mean the higher end apartment people are going to move there because you don’t have the look or the amenities that they are looking for. Probably at this moment $600 would be the highest you could push rents to and even then you have to think of how long it takes to fill something at $600 vs $575. If it takes an extra month you missed out on $575 which will take you almost 2 yrs to make up difference. 

Thanks @David Grabiner for confirming my thoughts. I know what you mean about the amenities and already at the ceiling for rent hikes. I appreciate you taking the time to share your wisdom and thoughts. I just needed to hear this from someone else. 

I forgot to add that you should change your financing to 5.75% interest and 20 yr amortization 20-25% down payment. because that is most likely the financing you will be able to get on that.