Is This A Good Deal?

Rehabbing, Fix and Flip, Rental Properties
1

I’m the new guy on the block but I have an oppurtunity that sounds great. What is everyone’s opinion?

24 unit apartment complex: 6 - one story buildings: all metered seperately. I beleive the owmer will take $745,000 for them.
Only 9 are rented and all need rehabbed.I have had a contractor on the property and he said it will take 6 to 8 thousand per unit to bring them back to where they should be.
Current rental income $3,300. per month
Utilities $ 165. per month
trash $ 150. per month
taxes $ 243. per month

My realtor has done some comps in the area and rent levels and the CAP rates are on an average 4.9% It seems that no matter what condition, the average price per unit is around $74,000.
The rents are low right now but after rehab they should be above $550 per unit.
The property is on 2.5 acres and it has a laundry on the premises
The contractor says he can have each of the 6 buildings rehabbed in about 7-8 weeks, so I could start bringing in more rent as the work is being done.

This is all the information I have at the moment, what do you think?

Dubs.

2

No way, seems like a negative cash flow situation to me by the time you buy it and do all that rehab per unit. Do you have the 20% you’ll need down on this? What about 6 months reserves?

3

Gross rents would be $13,200 per month with rents at $550 per month each.

Real world operating expenses would be about $6,600 per month.

The mortgage payment on $745,000 (20 year, 6.5%) would be $5,554 per month.

That means that your positive cash flow would only be $1,046, or $43/unit/month.

I’d say that is marginal, but at least it is positive cash flow.

Mike

4

Ps- At $74k per $550/mo rent you need to look harder for better deals…

5

I think that a newbie taking a 24-unit apartment building with a current vacancy rate of 62.5%, with all apartmants needing rehab for $745K is ridiculous…

Like Rich says, you’re gonna need about $150K down and about another $5K for reserves plus closing costs…IF you can get a commercial lender.

Keith

6

Rich is right, I forgot the rehab numbers. With $8K per unit rehab, the numbers look like this:

Gross rents would be $13,200 per month with rents at $550 per month each.

Real world operating expenses would be about $6,600 per month.

The mortgage payment on $937,000 (20 year, 6.5%) would be $6,986 per month.

That means that your NEGATIVE CASH FLOW would be $386 per month. YUK!

Mike

7

…and that’s if he can really get the places rented at that rate…at this point it’s pro forma and conjecture!

Keith

8

Thanks Guy!

Made this an easy call.

Dubs