I’ve stumbled across an 11 unit building that was built in the early 1900’s. Funny even the county records do not show the exact re-build date. The mix is 11 two bedroom apartments and 1-1 bedroom apartment. Currently the landlord has 4 vacancies, but currently pulling credit and interviewing. The rent breakdown is as follows:
3 apartments - $495/mo (new rent rate)
4 apartments - $375/mo (long term renters)
1 apartment - $350/mo (long term renter)
Seller has been hesitant about raising rents with long-term tenants.
Seller has done some updating,
After taking a look at the units there are 3 that need to be totally redone with paint, appliances, etc. The inside has never been cleaned and there is LOTs of space that can be used for things later. The owner is in the process of replacing all windows and at this point not exactly sure of other updates.
A few facts:
[]Seller is very motivated and willing to consider any and all offers
[]Seller is willing to consider owner financing, depending on price negotiated. However, I could not get her to even name a ballpark price.
[*]In my research have been able to determine previous owners two years ago were in their early to mid 70’s and let the property go. Owner is currently performing all of the upkeep.
From my drive by of the units, it is definitely low income rentals. From the outside it looks as if there is quite a bit of work to be done. I’m trying to not think in terms of where I would live so will not make any rash judgments until I see the inside. I’ve calculated a cap rate with the price they are asking and the rent/income information. Here is the breakdown:
Current asking price - $650k
Average cap rate in this area is 8%. The closest metro area is Richmond, VA and with the expenses currently paid the only way to get that cap rate is for them to sell at $425k.;
Current County assessed value is $162,300 for 2005. With the way housing is going in this area, it should be closer to $250 by January or higher, depending on the itemsfixed during rehab. After all rehabbing is done, the building should fall into the assessed $650k range easily.
Expenses I’ve calculated:
water - paid by tenants
electricity - common area paid for by landlord ~$100/m
Oil - propane is currently paid by landlord ~$225/m. With rising gas prices, I am almost doubling it for this winter (oil prices have made huge leaps);
RE Taxes - $1307 (2005 costs)
Insurance - $1500/yr (guesstimate)
Property management (currently performed by owner - 10% of rents is $2500/yr . However selling agency will manage it for 8% of rents.
Repair and maintenance (current owner says almost none but , I see why)10% is conservative $2500/yr until I can get it completely rehabbed;
Dumpster for garbage on property is $1380/yr
Snow removal ~$500 (guessing)
Questions to anyone:
[]1. Are my calculations correct or should I consider other expenses?
[]2. I have three proposed pricing ranges which would generate anything from a 10 to% to an 8% cap rate. In this area 8% is the average. My assumption is I would offer the lowest price to take the property as is, including vacant apartments and complete the renovations. Does this sound reasonable?
[]3. Do I get the renovations priced before settling 100% on the purchase price? Some basic things like cleaning up and painting I can do myself or use family members. It is the small plumbing and electrical work Iwill need help with. Also the replacement of kitchen cabinets and appliances in 3 apartments.
[]4. Are there other suggestions that could help seal the deal?
[*]5. The owner is willing to finance if she gets a decent price. This is an area where I could really use suggestions on how to structure a second or third offering using seller financing.
Thank you for any and all information. This will be my first apartment deal if I can make this happen.
I’m sheading tears for you Mike.