# Apartment Analysis

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