Apartment 52 Units - What would you offer?

General Real Estate Investing
1

52 Units in a good and central area with lots of apartments around. A solid C Class Property.

Tenant pays electric, owner pays water and gas. Property was rehabbed recently and is in good shape. Individuals HVAC units and boilers.

List Price is $2M.
Monthly Rents ~32,000
Occupancy is 95%

I am thinking of offering 1.7M or 1.725M at most. Here is the math.

Gross Rents: 32,000 X 12 = 384,000
Net Rent: 384,000 - 38,400 = 345,600 (based on 10% vacancy and loss to lease)

To be conservative I am assuming no additional/other income although there will be 2-3% other income such as laundry, app fess, etc. etc.

Expenses: 384,000 X .55 = 211,200 or ~4,062 per unit (based on 55% of gross income)

NOI = 345,000 - 211,200 = 133,800

At 7.75% cap rate is not unreasonable in this market.

Price = 133,800/.07 ~1.725M

What do you think of these nos? What would you offer?

2

Forget the cap rate! The purpose of running a business is to make money - not lose money. At a cap rate of 7.75% you WILL have a negative cash flow. Assuming your numbers are correct and assuming that you want a $100 per unit per month positive cash flow, then here is how I see this deal.

NOI: $133,800 or $11,150 per month

Less Desired Cash flow: So, $11,150 - $5,200 per month = $5,950 per month, which is the maximum available to pay the debt on the property. The maximum mortgage you could get for $5,950 per month assuming 30 yr term and 7% interest is about $880,000. So, I definitely would not pay more than $880,000 for this property. Anyone can pay retail and lose money. It takes hard work to find a deal that will actually make money.

Good Luck,

Mike

3

Propmgr. Thanks for your response. You’re right, I should forget the cap rate. I should be and am focused on the cash on cash return. I am looking for 10%. I have determined that a 10% return on my invested cash is good enough for me. I am not looking at this on a per unit basis. Just net cash flow/all in cash investment.

However, this deal does not give me that. Based on my calc. I will get a 4% cash return so I have decided against it.