12-door [Calc Review] Help me analyze this deal

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12-door [Calc Review] Help me analyze this deal

Kimberly VallancePro Member
Member since 2018 · 46 posts · 12 votes

first - the title is wrong: there's 12 doors, 8 buildings.

next - i've run the numbers at current rent roll and estimated repairs plus cushion (because, really, how often does a rehab exactly match estimate at purchase?). the result was negaive 400/month cashflow. then i ran the numbers at average rent for the area with same rehab budget. the result was positive 800/month cashflow. the reality will be something in the middle, right? 

also, i'll likely loose those tenants due to rent increase and rehab logistics. there is currently 1 vacant unit in the duplex, but everything else is rented. six units have been rented to the same tenants for 2-8 years. the other two units for about 8 months each. I'll have to review the leases for rent increase language. 

i'll have to carry the units while under repair, most likely, then rent the out asap-to the 'right' tenants (i.e. one's that can pay the rent and take some care of the property). the carrying cost is not currently in my budget here - should i estimate that and add it to the repair estimate for this analysis?

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

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    This property could have legs, @Kimberly Vallance. A questions to start:

    1. Are the 8 buildings co-located? This will affect any efficiencies of scale you can expect.
    2. What is the prevalent Cap Rate for similar buildings in the area?
    3. This analysis reflects what rents you expect after renovation, right?
    4. If so, you want to base any offer on how the property is performing now, not how it could perform after you dump a whole bunch of money, time, and effort into it.
    5. It sounds like you're going for a full repositioning of the property. Do you expect to raise the asset class (e.g. from C+ to B)? If so, that should compress your Cap Rate, which would be awesome.

    As far as your analysis:

    • Repairs and CapEx look high at 18% combined. I would expect 12-15% combined depending on what work is being done in the $80k reno and what efficiencies of scale you expect.
    • Why no water/sewer? Are all the units sub-metered?
    • No trash expense? Are they all on municipal pick up?
    • With 24 units, I'd try to negotiate your Property Manager down to 8%.
    • What about lawn care, snow removal, pest control, and admin/professional fees?
    • 8% on a mortgage is bonkers right now. I would expect you to be in the mid-4s on a commercial mortgage, even with a 30-year term.
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  • Kimberly VallancePro Member
    OP
    Member since 2018 · 46 posts · 12 votes
    6y

    @Jaysen Medhurst

    Thank you for your detailed response - it helps me out a very great deal! I'll be off now to do more homework to find/confirm the answers.

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    You've very welcome, @Kimberly Vallance. Let us know what you come back with.

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