Got two apartments. 15 unit and a 7 unit
Actual 2008 numbers:
7 unit
Gross Rents: $42,745
Expenses: $13,212
Net Income: $29,533
15 unit
Gross Rents: $74,901
Expenses: $30,483
Net Income: $44,418
They want $765,000 as a packaged deal.
What do you guys think?
I would say I want something like $85 a door in profit.
What are the rents for 2009?
Hi,
In multi-unit apartment investing the rule of thumb is 50% expenses and 50% to debt service. That said even though you show a expense number below 50% I have to assume by looking at this that you lack the experience investing in multi-unit's and don't understand your additional expenses.
I think what’s missing is general maintence, yearly seasonal maintence and replacement maintence expenses.
If you figure half the gross rents at $58,823 and we don’t know whether your numbers figured for a vacancy factor or the properties were completely full during 2008 with no vacancies.
But $58,823 is only $4902 per month to service debt and the cash on cash returns. A new first at $573,750 will require a monthly payment of $4,110 as a 20 year commercial multi-unit apartment loan at 6% due in 5 years.
So what’s left is $4902 minus $4110 = $792.
Now to purchase for 765,000 and finance $573,750 means you had to put down $191,250 as a down payment. Now $792 dollars is all that’s left to pay a cash on cash return on $191,250 plus an estimated $19,125 in closing cost’s so lets see $191,250 plus $19,125 = $210,375 of which $792 dollars is 4.5% cash on cash returns on your hard earned money.
There is no profit per door, there is not even a reasonable profit on your own money, so this investment does not work at anywhere close to $765,000
You really need to look over the whole set of financials and at what the current owners prosent for expenses against a full set of projections based on real cost’s including reserves for major repairs.
Look at the commercial part and property management parts of this forum.
Good luck,
GR
If this is your first investment rental, chances are a commercial lender will only give you a loan with a 15 year amortization, will require at least 25% down, and will require a minimum 1.3 debt coverage ratio.
If you have a track record, you may be able to negotiate more favorable terms.
Thanks everyone for the advice. I only offered 500,000 and it was rejected. On to the next one. :biggrin