16 Unit Apt Deal Analysis HELP

2 Replies

Hi Folks,

This is my first multifamily (Apartment) deal. I have 10 SF and 1 Duplex but want to be sure I am doing the numbers currently on this deal.

Asking Price: $1.4 million ($87,500/unit)

Current monthly rental income: $9775

Monthly Expenses: Water, sewer, taxes, insurance electric and garbage: $1123

This complex owner purchased this place in 1990. It was built in 1971. It is fully occupied in an area of town that is growing very rapidly. There are 5 2bd (750sf) and 11 1bd (450-575sf) units that rent for $500 - $725 per month. The complex needs a new roof ($40k) and driveway improvements (Optional). It has a laundry building but no laundry. It has parking, but no covered parking. A new 96 unit Apt Complex was just sold for $15 million about 2 miles away. It had all the amenities, pool, club house etc. They rent 1bd for $1000 and 2 bd for $1200/mo. 

My plan, if the numbers work, is to purchase, renovate, raise rents to $800 on 1bd and $1000 on 2bd. My reno budget is currently $150,000, but I havent dug into each unit yet.


Questions:

1. With this limited information, what would you pay? I had an appraiser friend tell me to use 8.2% CAP Rate

2. How do I reduce the 20% down that the bank wants me to pay? 

3. Thoughts on owner financing all or part of it?

4. How does the cash flow look to you? 

Mom & pop deals are hard to analyze.  With monthly expenses at $1,123 he clearly is doing all the labor for free and even then, those expenses feel light.

While there is a wide variation, expenses in the apartment space, average about 50% of revenue. Let's use this as a guide. If this were the case, the property makes about $5K per month before financing. That means an NOI of about $60K, and at $1.4M, a cap rate of 4.2 which is very low except for brand new properties in expensive areas.

That 96 unit apartment is not even close to being a helpful gauge of value unless the revenue per unit and expenses per unit are similar to this property. 

Finally, I think your appraiser friend is living in 2009.  I haven't seen many 8 caps lately.  Either way, this property seems over priced.

Thanks Greg. So if I can Reno and get my monthly gross rents income up to $14,000 and I can get the property purchased for $1.1 mil, using 50% expenses would yield me a 7.6%CAP, correct? But I think my biggest issue is cash flow if all I put down is the 20%.