Needing another set of eyes multi family 24 units
I'm looking for some feedback, we have an opportunity to buy an off market property before it gets listed. A little back ground we own 90 rentals and 4 storage unit locations. So this is not new to us. We have been active since 2007. We are being given the chance to buy 2 -12 unit buildings built in 2018. I building is 12 2-bedroom 2 bath units. All have nice kitchens, lots of storage, full appliances with a washer and dryer in every unit. Other building is a mix 2 bed 2 bath. 3 are 1 bed 1 bath and 3 are 3 bed 2 bath. All have balconies, forced air furnace and central AC. Plenty of cement parking. Rents are average $850 a month, not much room to move up maybe $50 a month. Expenses are $3500 a month with no management fee. And taxes are $1,000 a month not included in the Expenses. They will go up to $4,000 a month in 2031. They are under abatment currently. You may get that number down some. There is a 1% loan that I can take over that has $600,000 left on it. Till 2037 you have to pay $63,500 a year in semianual payments. $5300 a month. Asking price is $2,300,000. I can get a loan for the difference at 6% from the bank. It just doesn't leave much cash flow when i run the numbers. I just don't want to walk away from it if I am missing something. There are not many this nice that come along, right in the middle of our market. In the past we have always bought property that after improvements we could raise rents $200 a month and get decent cash flow. Just not sure if I want 24 more tenants with more yard just to say we have more doors.
i am open to any suggestions and different ideas at how to view this. I do have 8 single families that i can sell and move the money towards, just looking at ideas. Or better ways to finance this?
Thanks for any advice or reading.
David
Most Popular Reply
David, you've clearly got the experience to see what I'm seeing - the numbers are tight even with that 1% assumable loan. Let me break down how I'm looking at it.
At 24 units x $850 = $20,400/mo gross. Minus $3,500 expenses + $1,000 taxes = $15,900 NOI. Then your debt service: $5,300 on the assumable plus roughly $10,000-10,500/mo for $1.7M at 6% (depending on term) = $15,300-15,800/mo total debt service. That leaves maybe $100-600/mo cash flow on a $2.3M deal - essentially break-even.
And that's before 2031 when taxes jump another $3,000/mo. At that point you're underwater without rent increases.
A few thoughts on angles you might be missing.
First, is there value-add potential you're discounting? You mentioned these are "nice" 2018-builds with W/D in unit and all appliances. In most markets, modern units with those amenities can command $100-150+ above older stock. If market rents are truly only $50 above current, that's a saturation issue not a unit quality issue. Might be worth a deeper comp dive.
Second, that 1% assumable loan is valuable but the remaining balance is only 26% of purchase price. If you could negotiate the seller to carry a portion at favorable terms rather than bank financing the full $1.7M at 6%, the deal math changes significantly.
Third, your question about selling 8 SFHs to redeploy - what's your current yield on those? If you're getting 10%+ cash-on-cash on the SFHs, you'd be trading down significantly for the operational simplicity of MF at thin margins.
The "more doors just to say we have more doors" instinct you're flagging is the right question. At 90+ rentals you don't need vanity metrics. The deal needs to make sense standalone.
What market is this in? And what's the comparable rent for similar 2018-build product in the area?