Real Estate Deal Analysis & Advice
Market News & Data
General Info
Real Estate Strategies

Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal



Real Estate Classifieds
Reviews & Feedback
Updated almost 6 years ago on . Most recent reply

[Calc Review] Help me analyze this deal
Hello BP people,
I want to revisit an old deal I have previously posted.
My numbers on repairs/rehab are still rough estimates at this moment, it is just an estimate based on what I have seen so far.
*These numbers represent the way this quad will function after we house hack for a year and are 100% tenant occupied.
**I plan to renovate each unit as each "adopted" tenant's lease ends.
Thanks in advance for the help
Most Popular Reply

Brandon,
Let me start by saying I really appreciate your thoughtfulness and thoroughness.
Here is the stuff I have nailed down.The interest rate is an actual rate. Actually, the lender told me 3.62% but told me to use 3.75% to be safe since it fluctuates. I put 4% which gives me some cushion with financing. Per the lender PMI will be $135/mo. He did tell me conventional financing would be a significantly higher interest rate. The insurance is an actual premium quoted for a 600k rebuild value policy that includes vandalism/malice/loss of rents/liability and so on. The taxes have been in the $1800s historically for the past 5 years and my calculations are assuming a 25% increase in taxes. The management company that currently manages the property charges a flat fee of 8% of rental income, no hidden fees. (I intend to manage myself but I calculate it in for the future)
Here are the things you stated that concern me most. ARV, that is the one wild card I am pretty concerned about. Sure I can drop 40k and raise rents over the course of a year. But will my ARV increase? Or will I spend 40k to get only 20k in equity. That would be a bad deal. This is actually my most unknown component. I don't know how to reasonable predict ARV. In my eyes the value of a multifamily property lies in its ability to produce rental income. So if I can raise the rent roll from $2100 to $2800, wouldn't that increase its value to other investors? I really need help with this part...
Rent raises. I have done some market research that I think really has some substance. I would love to hear what you think about it. This may be little long winded but this I essentially why I haven't walked away from the deal... Current/historical rent roll has been $500-$550/unit for this property. My agent who knows the market very well says he is confident the units would all rent for $600/unit "as-is". I actually agree with this and I think it is realistic. I am confident that the reason the rent roll is low is because of deferred maintenance and minimal involvement with the property. The current owner owns 200 doors and from what I can tell he is looking more for occupancy than he is looking for maximizing his rental income stream. He acquired most of his doors during the recession and had no need to increase rents in order to cash flow. This still isn't my hard evidence.
Across the street there are two apartment communities that were built by the same builder of this quad during the 1970s. Arbor Terrace and Guest House Apartments. For both apartment complexes the two bedroom apartments have the exact same layout. Im not exaggerating, I will include pictures of the property I am under contract for and the ones from an actual Arbor Terrace unit I walked through yesterday. Arbor Terrace is asking $799 plus a $30 water fee for the exact same 2BR/1.5BA 1200sqft unit. They do have a pool, playground and gate. I definitely won't have that. Guest House also has the same unit in terms of specs however they include stainless steel appliances and include a washer and dryer. They get $925/unit for the 2BR 1.5BA. These apartments have waiting lists for people to rent.
My plan is simple, provide a more updated apartment with a washer dryer and ask significantly less than across the street. I will include photos below. The first image is the property I am under contract for and the one below is the equivalent photo of an actual arbor terrace unit that will rent for $830.








My estimations for 40k of renovations are high. My contractor is thinking more realistically that it will be around 6k per unit but I know things go wrong and I really want to make this quad competitive against the market so I can be selective in my tenant screening process. Also the exterior needs paint and repairs as well. I am confident that I can make my rental income projections, I just don't know if the price tag is worth it. My estimations on vacancy are based on the fact the these apartments across the street will likely be occupied and a prospective tenant will see that I am offering a washer dryer, nicer kitchen and bathroom for significantly less.
Please let me know what you think!
Thanks,
Nathan