Hey BiggerPocket Family!
I have my first apartment deal and need some advice on acquisition and exit. Its 6 units all 2 bed 1 bath rented at $850 (max rent I could increase to is 950 with updating) Purchase price 385k, (could potential update for about 8k per unit). Annual NOI 38k, DSCR 1.46, 10% cap monthly cash flow after expenses 1.2k. I don't want to tie up 100k (25% down) so are there any suggestions? Would you do this deal and how?
@Avonta Canady - walk away. It isn’t that this is definitely a bad deal, it is that there are a few things that make this a less good deal.
- your upside is identified as only 100.00 bucks. Sounds like the rent is already maxed out.
- to get that 100.00 bucks you are spending 8k.
- the down payment is what it is, but my concern is also that you potentially have 48k in renovation costs.
Keep looking for something with more meat on the deal.
@Dan Armich It’s 1200 per month. (1.2k my apologies) The repairs aren’t mandatory it was just a thought to just increase rents and value.
@Avonta Canady it has everything to do with what the cap rates are in your area and if you are paying their utilities and what the other expenses are for the property such as tax, trash, lawn care, etc.
I would buy this deal in my area and it would probably be worth 600k to 700k with a 7 cap depending on the other expenses.
@Shiloh Lundahl all expences are 17k. Cap rates in area are 6% and this property is right at 10%.
@Avonta Canady , there is not much you can do about the $100k. If you don't want to tie it up, then you don't buy the property, unless I am misunderstanding something.
Beyond that, you are getting a 15% ROI on your improvements. Not bad, not great.
If market is charging 6% cap rates and you are getting at a 10% cap rate, than it sounds like you are already in a good position. My question is: if market is 6% cap rate, rents are fairly close to market, why is it selling for a 10% cap rate?
Also your math seems to be off somewhere. 850*6*12=61,200. You mention 17k in expenses, so NOI is 44,200, but you mention in original post NOI is $38,500. What am I missing here?
Just confirming: have you run NOI with taxes at 385k PP, and your insurance number?
If you can spend 48k, and bump NOI from 38.5k to 45700, and apply a 6 cap, you have a property 761k. I am skeptical of the 6 cap, but even at an 8, you have a 571k property, with 433 invested, that will net you over 100k in sales proceeds if you stabilize and sell.