[Calc Review] Help me analyze this deal

3 Replies

So this is a 14 unit apartment building bundled with a 3 unit house. I am looking at the information from my agent and there seems to be a lot of room for improvement.

Firstly, the owner pays for electric, heat, water and sewer. Why? I have no idea however I imagine those expenses could be put on the tenants and instantly bump up cash flow.

Secondly, 2 out of the 14 rent agreements in the apartment building are at full year leases and the rest are month to month. Along with all of them having different rent prices fron 450-700. I have no idea why there is any variation. However if all the rent was bumped up to 650 this building would become more profitable. 

I am not currently in position to buy this property and I am doing practice at analyzing deals. This complex cash flows at 2% with none of the changes. Awful return. But it seems to have been ran by a mom and pop shop. I have been listening to multiple podcasts that are stating "look for the potential" aka raising rents, lowering expenses. 

After making all the rents a standard 650$, even with paying ALL THE UTILLITIES this property then cash flows at 1698.56 a month coming to an 8.98 cash on cash return with a 20% down loan at 4.5%. 

Obviously I haven not walked the apartments, I have no knowledge of how gross many of these apartments are, but this seems like a prime opportunity to scale and make changes. 

Overall I am just trying to learn what other have done and what they think specifically about these small apartment buildings. Thanks

@Justin Woodworth , the owner may be paying for utilities because they aren't separated. to do so would mean re-wiring and re-pluming the entire building and potentially installing 14 separate furnaces and water heaters. So, "instantly" bumping cash flow is unlikely. You need details here.

Repairs and CapEx are too low. Figure 15% combined.

What's the salt delivery?

Assume some initial repairs. At least $10k. There's always something.

If the owner is paying for all of the utilities, the associated expenses listed are ludicrously low. $85/unit/month for heat, hot water, electricity, water, sewer, and trash? Not on your life. I bet it's actually closer to $245/unit/month.