question for EXPERIENCED owners of large complexes

General Real Estate Investing
1

I was just contacted by a friend about the following opportunity. I have only a few sfh units right now, so this is a major change of direction, but I have the resources to possibly make this happen. Can anyone with ACTUAL EXPERIENCE, not other newbies guessing, tell me what I really need to do to evaluate this deal. I know I need to check out actual income statements, vacancy, and deferred maintenance, but how do I go about acquiring all the needed info, and what other things do I need to know. This apartment complex is in a lower income area so I’m sure there are management issues, but the numbers they list here look like they could be way off and still leave room for high cash flow.

The Listing:

Multi-family Property
158 total unit(s)
Year Built: 1976
Complex features: One bedroom unit(s): 32, Two bedroom unit(s): 94, Three bedroom unit(s): 32, One bedroom rent: $457, Two bedroom rent: $479, Three bedroom rent: $676
Type: Flat
Heating features: Electric Heat Src, Forced Air
Interior features may include: Electric service available
Exterior features: Sanitary Sewer Service, Storm Sewer Service, Water Service
Estimated gross income: $967133
Tenant pays: Electric
Owner pays: Sewer, Trash, Water
Approximately 12.4 acre(s)
Lot size is between 10 and 20 acres

Also, 6% realtor commission on this would be 180K, which is way more than I need to pay. My realtor, who I have used loyally, does not have a lot of experience in this type of deal, but I would still like to use him if it wouldn’t be a serious mistake to do so. What kind of commission for this amount of work is fair, is the sellers realtors commission (90K) also fair game to deal on, and am I correct to assume this all needs to be discussed in advance of any other talks.

Any productive feedback will be appreciated.

Thanks.

2

hi buckeye

you dont say gross price!! however i assumme $3 mil

with that gross income 900k how do you get cash flow?

all the other facts you can check out to see whether they are in the ball park. if your happy with losing “tax shelter” a whole bunch off money every year go for it.good luck and correct me if im wrong

moke

3

Moke,

How do you get that this is necessarily a losing proposition?

There are still a lot of factors missing to do all the math for the NOI (taxes, insurance, managment, vacancy, maintenance, etc.) but if the gross is $900K and the debt service on $3M at 8% is $264K a year, there could be room for profit here.

Just my 2 cents…

Keith

4

correct, i did leave out the asking price is 3mil. That certainly doesn’t mean that is where the sale would go, of course. The 975K gross is the sellers estimate, which is no doubt a “best case” estimate, not figuring in uncollectables, vacancy, etc. This is initial info, I haven’t checked out any numbers yet.

5

hi

keith

i obviously made a mistake in my math

30% debt service sounds ok.

70% other exp seems ok.

buy it!!

moke

6

“Buckeyes58” is the buyer…I’m just a casual observer and thought I had missed something…

7

Sounds to me, based on the year built, and the number of units, that it has turned into a money pit, and the Positive Cash Flow has been reduced, by deteriorating systems, A/C, Heat, major appliances.

You’ll need to find out the maintenance costs, if they have an on-site manager/maintenance, do some serious digging into the property.

Do a physical inspection, or have it inspected, to find out what the status of the systems are for each unit, and from that get an estimate on the repair/replacement costs.

Do your homework!

Good Luck!