Just closed on 32 unit apartment

Just closed on 32 unit apartment

Real Estate Broker · Flower Mound, TX · Member since 2012 · 58 posts · 30 votes

Hey everyone. Just wanted to share my success. It is a 32 unit apartment located in Dallas. It was built in 1983 and features 14 one bedrooms and 18 two bedrooms. The kicker about this property is that each apartment has its own garage. They are single car garages, but they are really long so you could maybe squeeze two small cars in them.

The property has a lot of deferred maintenance that I will be addressing in the next few months. The roof and gutters are the big thing. There is also a french drain system that is completely clogged up that we will have to clean out. The previous owner had just put in a mix of laminate and vinyl wood flooring throughout the units. The interiors are in pretty good shape, but the exterior is extremely neglected. The units have individual HVAC's and water heaters, about half of which were replaced within the last 2 years. The property management company I hired specializes in the value play. They have their own construction division to do all the work. They are a bit more expensive then the other companies I spoke to, but with all the deferred maintenance I feel it needs the extra attention these guys will give it. This includes a full time manager and part time maintenance person. Management cost will be about 10% plus one apartment.

It is in a section of Dallas called Vickery Meadows. It is a low income, mostly Hispanic area. It has the highest population density in the DFW area with approx. 44 units per acre. The area is in the beginning stages of gentrification with a new Walmart, Sams Club and Target having just opened up nearby. There have also been a few apartment complex's that have recently been torn down in order to build newer nicer complex's.

The purchase price was $850k with $50k seller credit to go toward the deferred maintenance so effectively a $25k per door purchase before figuring in deferred maintenance costs. I was able to get a local bank to finance it with a 80% LTV @ 4.625%. 25 year amortization. It is a 5 year note with a balloon at the end, but the bank has an option to extend for additional 5 year periods instead of re-financing. I wanted a longer term, but banks didn't want to go any longer without a steep rise in rates or larger down payment. Closing costs were $22,269.72 along with $2,100 for an inspection. Total cash in was $183k. Expected NOI (per property managers budget) $82,518.

I'm real excited about his deal. It is my first. I have a few other properties, but those are all partnerships that I inherited. This is the first one I have done on my own and will have control over. It is also my first multifamily, the others are industrial.

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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
13y

Let's call NOI 82,000.

So at 50% costs gross expected income is 164,000 or 427 a door per month

If landlord pays water 60% gross income is about 206,000 or about 536/door

The 5 year balloon is the killer. I see some banks go 7 or 10 years out at the low rate you have but ltv is 75% and not 80%. My buyers just usually get a seller held second to increase cash on cash but opt for the longer term debt.

The bank option to extend another 5 years does the bank lay out specifically what the options will be or do they leave it wide open?? We make projections on five year term balloons with exits to dump quick if you need to.

I find local banks only do the 5 years as they are worried about future interest payouts to depositors versus rising rates. Regionals and larger banks give more long term debt but are more picky on the property.

How much per door is estimated for immediate capex versus ongoing capex with the property??

See this reply in the discussion

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  • Real Estate Broker · Flower Mound, TX · Member since 2012 · 58 posts · 30 votes
    12y

    Hey everyone. Sorry its been so long in updating. I have been real busy lately. Since I last posted I got my RE license and have been working on getting that business off the ground.

    As for the apartment it is going pretty good. So far we have been putting all the income back into the building. We have had to replace a few AC's and a few hot water heaters. The previous owner had put down vinyl wood flooring in a lot of the apartments, but we are finding out that they didn't install them properly so they are pulling up from the subfloor. We have had to redo a number of the apartments. We have been replacing a lot of the exterior wood due to rot. We are getting ready to paint the exterior.

    We also had a little bit of an issue with a fire. The apartments have fireplace's and I guess one of the tenants didn't open up the vent when they lit a fire. Ended up loosing the entire wall where the fireplace was. The fire department thinks they might have used lighter fluid or something to get it started. Gotta love tenants. It was about a $2,000 repair. Cost a bit extra because we had to do everything above board due to the fire department responding. We drywalled over the fireplace so that we won't have this problem again, at least in this apartment.

    Overall the management company is doing a good job. The manager and maintenance guy are great. They are very pro active about taking care of the place. They have been raising the rents on the incoming tenants. I can be as little or as much involved as I want to be. I usually stop by about once per month. I get detailed reports every month. Once all the work is done I think we will be able to sell for a significant gain. Unless I decide to keep it.

  • Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    12y

    Thank You for update

  • FL · Member since 2009 · 2k+ posts · 357 votes
    12y

    @Chris Soignier,

    To make the @ work, do the following:

    Hold down the shift key and type @?

    Look below this Window, and you will see a list of names of people that have posted in this thread.

    Click on the name of the person that you want notified via an email, that you responded to them.

    If you are a Colleague with anyone that has NOT posted in the thread, and you want them to see your post, hold down the shift key and type the first 4 letters of their First or Last Name.

    Then look below this Window and click on that person's name.

    Raymond

  • Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
    12y

    Thanks, @Raymond B.

  • Sunland, CA · Member since 2015 · 2 posts · 0 votes
    11y

    You mentioned the property management company went through each apartment during the due diligence phase and did estimates.  Did you have hire an outside company to do an inspection of the property?  If so, what was the cost?  

  • Plano, TX · Member since 2013 · 226 posts · 156 votes
    11y

    @Shirley Kennedy, I'm not the original poster, but if you're interested, here's what I've run into.  We bought a 32 unit property as well, and we hired an independent contractor who does due diligence inspections for multifamily properties.  He charged $50/unit, and gave us a report showing all repairs needed, with photos, quotes from contractors, etc.  That is what the bank used to determine the rehab dollars to give us.  

    On a few other deals I've looked at, I've had a few different PM companies offer to do the due diligence inspections for free if we had them run the property.  Otherwise it was $25-$50/unit.  This was on 100+ unit properties, so it was more beneficial to them.  I'd check with a few local PM's and see what you can find.  As with anything, there are good and bad ones.  I've heard a lot of complaints from people who had due diligence inspections done, and spent the next several months finding all kinds of surprises.  These inspections are typically QUICK, so they can't be 100% accurate.

  • Investor · Baltimore, MD · Member since 2015 · 11 posts · 0 votes
    11y

    Wow!! I need this. Thanks for the information!

  • Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes
    11y

    @David Turner so cool, congrats! What's the next step for you after it is fully stabilized? 

  • Rental Property Investor · Glendale, CA · Member since 2013 · 685 posts · 334 votes
    11y
    Originally posted by @Tom Lafferty:

    @Shirley Kennedy, I'm not the original poster, but if you're interested, here's what I've run into.  We bought a 32 unit property as well, and we hired an independent contractor who does due diligence inspections for multifamily properties.  He charged $50/unit, and gave us a report showing all repairs needed, with photos, quotes from contractors, etc.  That is what the bank used to determine the rehab dollars to give us.  

    On a few other deals I've looked at, I've had a few different PM companies offer to do the due diligence inspections for free if we had them run the property.  Otherwise it was $25-$50/unit.  This was on 100+ unit properties, so it was more beneficial to them.  I'd check with a few local PM's and see what you can find.  As with anything, there are good and bad ones.  I've heard a lot of complaints from people who had due diligence inspections done, and spent the next several months finding all kinds of surprises.  These inspections are typically QUICK, so they can't be 100% accurate.

     Where in Texas did you purchase? 

    Do you have any details?

    I'm a little curious, do you have any visuals?

    Thanks in advance 

  • Rental Property Investor · Glendale, CA · Member since 2013 · 685 posts · 334 votes
    11y
    Originally posted by @David Turner:

    Hey everyone. Just wanted to share my success. It is a 32 unit apartment located in Dallas. It was built in 1983 and features 14 one bedrooms and 18 two bedrooms. The kicker about this property is that each apartment has its own garage. They are single car garages, but they are really long so you could maybe squeeze two small cars in them.

    The property has a lot of deferred maintenance that I will be addressing in the next few months. The roof and gutters are the big thing. There is also a french drain system that is completely clogged up that we will have to clean out. The previous owner had just put in a mix of laminate and vinyl wood flooring throughout the units. The interiors are in pretty good shape, but the exterior is extremely neglected. The units have individual HVAC's and water heaters, about half of which were replaced within the last 2 years. The property management company I hired specializes in the value play. They have their own construction division to do all the work. They are a bit more expensive then the other companies I spoke to, but with all the deferred maintenance I feel it needs the extra attention these guys will give it. This includes a full time manager and part time maintenance person. Management cost will be about 10% plus one apartment.

    It is in a section of Dallas called Vickery Meadows. It is a low income, mostly Hispanic area. It has the highest population density in the DFW area with approx. 44 units per acre. The area is in the beginning stages of gentrification with a new Walmart, Sams Club and Target having just opened up nearby. There have also been a few apartment complex's that have recently been torn down in order to build newer nicer complex's.

    The purchase price was $850k with $50k seller credit to go toward the deferred maintenance so effectively a $25k per door purchase before figuring in deferred maintenance costs. I was able to get a local bank to finance it with a 80% LTV @ 4.625%. 25 year amortization. It is a 5 year note with a balloon at the end, but the bank has an option to extend for additional 5 year periods instead of re-financing. I wanted a longer term, but banks didn't want to go any longer without a steep rise in rates or larger down payment. Closing costs were $22,269.72 along with $2,100 for an inspection. Total cash in was $183k. Expected NOI (per property managers budget) $82,518.

    I'm real excited about his deal. It is my first. I have a few other properties, but those are all partnerships that I inherited. This is the first one I have done on my own and will have control over. It is also my first multifamily, the others are industrial.

     Congratulations on the purchase. 

    In fostering my growth, I am doing research on Texas. 

    Hence, I looked up the location and found two different zip codes: 75225 and 75231.

    Which one is your property located in, and do you have any visuals?

    Thanks in advance 

  • Investor · Columbus, OH · Member since 2014 · 37 posts · 12 votes
    11y

    Congrats, great post and info.  This will help tremendously in my search for a mfh with the goal of a 4 unit before the year is out.  

  • Orlando, FL · Member since 2013 · 3 posts · 0 votes
    10y

    Congrats that is a awesome deal. Best wishes

  • Jeffrey McKeePro Member
    Real Estate Agent · Plano, TX · Member since 2013 · 477 posts · 89 votes
    10y

    @david turner.  I just stumbled across this thread and wanted to see how everything turned out for you on that deal.  Sounded like  a sweet deal especially for the location and appreciation!  

  • Rental Property Investor · Gulf Breeze, FL · Member since 2014 · 1k+ posts · 733 votes
    9y

    @David Turner - my investment partner and I are under contract on a 42 unit property (our first apartment building), similar to what you've described in this post. Appears it has been 3 years since you first posted. What have you learned since closing? How's the property doing now? 

  • Plano, TX · Member since 2013 · 226 posts · 156 votes
    9y

    David sold that property a while ago.  I know because a friend of mine bought it!

  • Houston, TX · Member since 2015 · 98 posts · 24 votes
    9y

    @David Turner Great story can you share the final numbers and if you used that to leverage into a bigger property

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