My mentor asked us to go look at an apt. building, (even thou we can’t afford it, he said he would buy it if the numbers work).
It was a nice building in an ok neighborhood, low/middle class, in middle class neighborhood.
So my question…Fixing up, quality levels?
Linolium floors (looked terrible) in the kitchen, wouldn’t it be better to put a cheaper tile in there? Something that can take some abuse, and still look ok?
Second…the owner doesn’t update or fix (until broken), so they looked rough. Wouldn’t you have shorter vacancy rates if you polished it some between renters?
Looking for opinions, as I start my REI carreer. (and yes I’m going to ask my mentor the same questions)
What was the price and how many bedrooms and units was it?
No. Units: 18
Price: $1,469,700
Price/Unit: $81,650.00
GRM: 9.04
Cap Rate: 6.43%
Effective Gross Income: $163,500
Maintenance: $5,700
Taxes: $29,500
Insurance: $3,900
Other Expenses: $29,880
Total Expenses: $68,980
Net Operating Income: $94,502
1 bedroom with 1 balcony
No. Units: 9
Avg. Mo. Rent: $700
2 bedroom with 2 balconies
No. Units: 9
Avg. Mo. Rent: $800
The CAP is low, but the rents are also a bit low too. Which got me thinking of doing a little fix up and it should pull in a little more. I have not done my research on the other buildings rents around there, but a 2 bedroom should pull in 900-1000. Which would do wonders for the CAP rate. Not to mention that we can beat up the asking price also.
Great learning experience with this one. Realtor also told me the seller is open to seller financing.
This is a HORRIBLE “deal”. The mortgage on $1,469,700 with a 30 yr term and 8% interest is $10,784 per month or $129,410 per year. With a NOI of $94,502, that means that you would have a negative cash flow of $34, 908 per year. OUCH!
I’d RUN far and fast!
Mike
That’s pretty horrible. Usually apartment buildings have much higher cap rates. Plus it’s going to be a commercial mortgage so they usually want you to have a pretty high down payment. Because they’re tougher to finance, the cap rates are usually higher on apartment buildings than regular residential where it’s possible to get 100% financing.
The other clue is that the seller is willing to provide financing. They’re usually open to that when they have trouble selling it and creative financing is the only way they’re going to move the property without lowering the price.
Mr. Miller, my name Charlene Biggs, I am a contractor and an investor. You are exactly right about the maintaining of your investment property. When you do any kind of rehab, you have to always think about the monies that you will spend in the long run if you short change yourself on the rehab. The way to make your investment property work for you is to spend the money one time, and after that you would only de doing minor touch ups and repairs. When you are doing tile, it is always best to just do ceramic, its durable, and will last long.
Like Seller carry 100% of price at 0% interest for twenty years… :o
Thanks everyone for the input and ideas. Yes I know it looks ugly, but it is the ASKing price, so it never hurts to practice the negotiating practice.
Thanks Charlene for the input on the tile floors, kinda what I was thinking also.
Oh we are…
We believe that any house that we take the time to look at, we make an offer on.
Being new to multi-units, we will use it as a learning experience also, getting the operating statements and reviewing everything.
“Second…the owner doesn’t update or fix (until broken), so they looked rough. Wouldn’t you have shorter vacancy rates if you polished it some between renters?”
I’m an SFR guy, but a Multi friend of mine gave me a couple of words of advice…There are only two ways to make money in Multis…fix nothing, or fix everything fast. The financial logic behind this stement is apprent and echoes your assumption above.
D.