I have an opportunity for to buy a 16 unit apt. complex. 14 unit is 2/1 ($395/mth), 2 unit is 3/1 ($575/mth), tenants pays their own utilities. It’s in a low income neighborhood (not war zone), no tenants are section 8 at this time. I’ve looked at the leases, looks like longer term ppl.
13 of the 16 is currently rented out. So, monthly income if all filled ($6830/mnth income), monthly expenses is about $1,500 (via the seller). The asking price is $275K (let’s assume I buy it at this price - which I won’t). Let’s assume I go 20% down and 7% rate (owner will finance at this rate). He’s an out of town owner, so now he just wants out.
I live in the town and can do all the minor repair stuff.
How does this deal sound to you guys? What am I not looking at that will catch me off guard?
Looks good. Tenants paying their own utilties is one thing you want to varify. What don’t they pay (Garbage, water, etc). Look with negative eyes on all the repairs needed. Get a REAL idea on how much updating and repairs are actually needed.
When I go through a place I take great notes. Then the next time I go through the property I see ALOT more. I would go through the property, then go through it for a second time a few days later. Then put the bid down if you still want it.
Don’t be in a hurry. Investors that are in a hurry make disasterous mistakes and NEVER make money. Take your time and be smart. DON’T RUSH through a property and don’t ever be afraid to request a second viewing.
Thanks for the input. I calculated 50% of gross rent as expenses. Should TAXES and INSURANCE be included in that 50%? And mortgage is separate?
Everything except mortgages and initial repairs are included in the 50%.
$3,415 Net operating income
-1,464 *80% 1st at 7% (seller financing)
- 443 *20% 2nd at approxiately 9% (assuming 9%)
$1508/16 units = $94.25 profit per unit = A GOOD DEAL
This assumes there are only minor initial repairs on the property
Also, be sure to see inside all 16 units. If you were the seller and had 10 trashed units would you show all 16 units or just the 6 best? 6 might need paint and carpet, the others might need new appliances and cabinets.
HOLY COW where are these units? Since I have been in here I have noticed that units are going for 20,000 to 30,000. I am in California where average cost per door is $75,000. Actually that is the average where My property is in Bakersfield in the rest of California average unit cost is probably $150,000.
HOLY COW where are these units?
FLYOVER COUNTRY! Get on an airliner and head east. As soon as you cross California border, start looking out the window. If you blink as you cross Phoenix and Las Vegas, almost everything else you see on the trip to the east coast is flyover country where the real world still exists.
Do you buy propertys outside of your area? I have known that there are better deals outside of Cali but for some reason I have noy felt comfortable going outside my state. If you do buy outside your area what has been the biggest problems with that.
I don’t believe propertymanager invests out of state, but I do.
Your question is simple. Every single thing you do in real estate is much harder and crappier when you invest out of state. Literallly everything is more of a pain in the butt. Everything is harder, takes longer, and is more risky. Things like repairs, vacancies, going to the property, evictions, etc. will be crappy.
On a positive note. Investing out of state is fine if you have a good property management company running your property. Otherwise I would not try it.
Thank you for the advice. In the 1950’s my father bought a shopping center in Oakland California when the area was pretty decent. In the late 1960’s things started going down hill. By this time he was retired living about 100 miles away. He had a property manegment co. 1st the rent roll slowly started to shrink. then the rent checks started getting later and then there were a larger number of vacancys than normal. Then the property management co. finaly quit. (all the while saying don’t worry we have everything under control , famous last words)
You know you can panic when everyone says don’t panic. He sold it in the early 70’s happy to be rid of the problem.
No, I don’t invest out of state or even out of my county. I like my rentals close by - where I can take care of things in-person.
Excellent example norm4254. When you hand your properties over to a Property Management Co. your job CHANGES, but does not END. Processor to a Supervisor basically.
Lets say you have 8 SFH and 2 apartment complexes you want to hand over to a property manager. You are basically switching from a basic processor that takes rent, handles calls, repairs, etc. to a Supervisor. You no longer take rent, field calls, or do the day to day stuff. Instead your job is to make sure your processor/Property Manager is doing there job correctly. You have to drive past the property a few times a year (yearly review), and ALWAYS make sure their procedures for vacancies, repairs, etc. is efficient. You still own the properties when you hand your properties over to a Management Company, so you are still responsible for the properties being managed correctly.
My jaw almost dropped when I saw this…
These kinds of properties are nonexistant in big cities where I live.
A property that cashflows like that begins at 800-900K.
Even buying them at 70% of market value doesn’t come close to that kind of price.
Is the seller motivated and has the seller provided you w/ the historical financials on the property? How long has the property been listed or for sale?