A small apartment complex has come up for sale. I walked thru it a few years ago and it was pretty rough then. The bank has taken it back over and is in the process of fixing it up. Here’s what I know so far:
36 units - comprised of 12 - 1br and 24 - 2br
1 br units rent for $395
2 br units rent for $495
Tenants pay for own water and electric.
Trash dumpster on site paid by owner.
22 units currently rented with other units being rehabbed
Annual property taxes are $13,500.
Insurance estimated at $7500 based on the value of these compared to the insured value of some of our other properties.
Buildings are triplexes with vinyl siding and pitched roof with shingles.
Complex is close to a major highway, but the area behind the complex going deeper into the city could be better.
I’m estimating it could take another $100k in repairs because most of the central air units are junk and there’s other rehab still to be done.
Bank is “hoping” to get 10k/unit for a total of $360k.
Even with that rehab cost added in, the numbers still seem to be really good for cash flow. This is one of those deals where the complex will never really be worth $1MM or anything like that mostly because of where it’s located. I just wanted to see what everyone thinks. We’re heavy on SFHs so this would be different for us. We’re supposed to meet with the bank president Monday.
Have the bank fund your rehab and finance you for 10 years. $10k plus another $3k/unit in upgrades? That’s probably not enough upgrading money if you include lost rents, marketing costs, and the management costs required to reposition the units.
Plus you’ve got to plow in at least $100,000 for a down, plus another for rehabs? This building now costs $450,000, not including the turnover costs.
At this price, this is not going to be a cash cow.
If this were me, I would offer the bank $300,000, with $100,000 in a rehab draw for total loan of $400,000. I want 3.5% fixed for 10 years and no personal liability. They’ll take it, because you’ve got experience, and a willingness to handle a C- property in a C- area. And few buyers are ready and willing to pay cash for a property with a poor performance history (regardless of why), much less get financing on a non-performing property like this in the first place.
Thanks for the reply Jay.
They’re getting about 10k/mo in rent in its current state. I’m figuring my payments would be about $3500 give or take for 10 yrs. The bank has been giving us 5.65% on a 10 yr am for our last few deals. This is the same bank we bought a bunch of units from back in January. Some were a guy who was going under badly and we also bought five of their foreclosures so we basically cleaned up their books and took them out of property management except for this deal.
The thing right now is we don’t have the cash to come up with the standard down for this deal. I told that to the guy I’m working with at the bank. He wants my wife and me to meet with him and the bank president Monday to see what we can work out. The guy mentioned taking a second note for the down payment. I definitely want another walk thru before talking numbers. I figure the meeting Monday will give me a feel for where they are with it and what they will go to get us into it. I know they’re motivated to move it and they know we fix things right and pay on time so I’ve got that on our side.
I like the idea of a draw account. That would let us get things fixed up quickly. I was figuring on financing the purchase price and then using the extra monthly cashflow from the currently filled units as well as our other properties to get things fixed up. I didn’t really think the bank would want to loan the rehab money too.
We drove thru tonight about 9:30pm to see how it looked at night. There were a couple people sitting out, but it was nice and quiet so maybe it won’t be too bad.
Well, the apartments didn’t work out. Someone else stepped in and gave the bank “over 300k” for them as-is. There was no way I was going that high for these…all things considered. We have some more leads on things and managed to get a 4/2 under contract this week for 11k. Needs about 7-8k of work and will rent for $650/mo. We now have three full rehabs lined up to keep our guys busy for awhile.
How many properties are you at now? What is your ultimate goal for retiring or are you just looking to keep buying and buying? In other words, where are you trying to get to so that you can retire? Is it a certain amount of cashflow per month before they are paid off or is it a total number of SFH’s? What exactly? I feel like you are where I am heading, so I was interested in your insights. Also, how old are you if you don’t mind me asking, b/c I feel you are young like me.
Anyways, I can do similar deals as you but I pay a little more on the purchase price and have less in fix-ups. My best deal is I bought for $36k, put 25% down w/ 15 year note. Had about 2k in fixups and am renting it for $900. But my deals generally are purchased around the $40k-$50k mark w/ rents in the $800 - $850, but I have a couple that I bought for $65k that are renting for $1025 or so. So anyways, let me know your goals, I want to compare them with my own.
Well, I guess I could pull a Propertymanager and say “several dozen”…
We’re getting ready to close on another house. That will bring us to 6 apartments, a duplex, and 34 houses. So 42 units total, but you can see it’s a mix. I’ve never been so exact on here before, but I guess it won’t hurt.
We had a goal of getting 30 sfhs in addition to the apartments, so we’ve already passed that. We enjoy it and plan to keep taking advantage of opportunities while the deals are good in this market.
My original goal was 20k/mo in rental income. I figured once everything was paid off the breakdown would be like this:
5k/mo taxes and insurance
5k/mo repairs, maintenance, etc
10k/mo money to live on
My military retirement should be about 3k/mo so total income would be 13k/mo. Of course I realize these are estimates on paper and there will be ups and downs at times. I’d still like to build a medium size apartment complex or neighborhood of new rental houses at some point, so I imagine we’ll have several more units in the future. This has been a really good year for us and we didn’t think we’d buy as much in one year as we have so far, so you never know.
My wife and I are both 36 and we’ve been doing this for just over five years at this point. Your deals sound pretty good and I imagine you’re probably dealing with some better areas than we are.