Apartment Deal or No Deal?

General Real Estate Investing
1

20 unit multi
$500 per unit monthly rent= $10000 current max
20 year Loan at 7.1% with 20% down= $4375 PITI
Asking price of $700,000

I think the price needs to be $600,000 for this to be even considered a potential deal.
Am I right on this?

Thanks
Oz

2

Not a deal. If you count on 50% of your rent going to expenses, which you should, then you’re left with less than $700 a month in profit for 20 units. You need to get the price way down for this to be worth your time.

3

TY Paul
Are lenders extending credit beyond 20 years for apartments? 30 years and a price slash would make this deal attractive.

4

I agree, no deal. To be more specific:

  Purchase price:  $700000

  20% Down payment: $140000

  Net Operating Income:  $10000/mo * 12 mo/year * 50% expenses = $60000/year

  Mortgage:  $560000k for 20 years @ 7.1% = $4375/mo = $52500/year

  Cash flow = NOI – Mortgage = $60000 - $52500 = [u]$7500/year[/u] ($31 per unit per month)

  Return on Investment = Cash flow/Down payment =   $7500/140000 =  [u]5.4%[/u] (Ignores closing costs and misc. out of pocket expenses)

This is awful using almost any criteria.

If you pay $600k and keep the terms the same, your cash flow becomes $15000/year ($62/per unit per month) with an ROI of 12.5%.

Anything you can do to get your cash flow up here would be a good thing: lower purchase price (well duh), longer term loan (interest only?), larger down payment, etc.

5

Thanks Equity