Looking for help/advice on a 22 unit multi family complex!

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A 22 unit complex just came up for sale in the city I live in for what seems to be a very handsome price (1.29 million- which is roughly 53,000/unit) the numbers show great returns on the property but I need assistance on how to be sure it isn’t a loss, also looking for potential investors if it is as good of a deal as I think it is. Thanks!

You'll have to complete your due diligence and verify the numbers. A property can look like a real gem but actually be a stinker if the owner is cooking the books or failing to account for certain expenses.

Hi Joel,

I am assuming that when you say "the numbers show great returns" that the numbers are the current owners income and expenses? If so, you need to dive into their numbers and get each income and expense category, determine if that is how you will operate the property as well. 

Some questions to ask yourself:

  1. Will you be able to raise the rents? (based on rents at comparable properties in the area)
  2. What percentage of the income is paid as expenses? Anything below 45% would be concerning
  3. What is the cash flow after paying the debt service?
  4. What is the deferred maintenance situation? If there is a lot of deferred maintenance, that is money out of pocket
  5. Is the property currently self-managed or managed by a property management company? If self-managed, will you be self-managing or paying a management company?

These are some questions to get your started, but I recommend doing a full underwriting to determine a fair offer price.

@Theo Hicks I have gotten numbers back on the propterty and they are as follows: Total rent income in 2017: -$159,173 Total expenses: -$33,596 Total cash flow- $125,577/yr These numbers are without a mortgage also and a million dollar mortgage at 5% interest is approx $5600/month=67,200/yr 125,577-67,000=$58,577/yr cash flow The building was renovated 14 years ago new windows,stucco, roofing, cabinets, doors (exterior, interior), faucets There Is also room for a rent Increase as it is about $100 under average in the area. These numbers are still appealing but maybe it’s just me. What do you guys think?
@Joel Senko Hi Joel, Those expenses look very low, it was likely self managed. Depends on the property age and location, but anything that’s more than 30 years old I would assume the expense are approximately 40- 50% of the gross rents. Elliott

Hi Joel,

Those expense look VERY low (21% of the gross income). It was likely self-managed, but still - something else is going on with the expenses. 

Where is the capex reserves, vacancy expenses, property management expense/reserve, etc? It seems like those expenses are what they actually spent (last year, last 2 years average?).