Help On 1st Multi-family Deal
Here is what I am looking at finalizing this week. I appreciate any thoughts on this:
32 units (8 quads) - All 2 bedroom units
17 Units occupied with rental income of $5415 monthly. 4 units are rented to some very long term tennants at below $250 per month right now.
15 Units need work (approx $3k per unit) to get rented. They should rent for $425 once completed for an additional monthly income of $6375
At 100% occupancy that would make rent roll = $11,790
My purchase price as-is is $500k with the following seller financed terms:
5% down
8% interest rate
20 year loan
What do you think of this deal?
I am trying to determine my exit strategy and I think I want to buy it, complete the last 15 units and rent them out.
At that point I am thinking about selling it.
Thoughts?
The tennants pay all the utilities.
Your question on exit strategy is a great one. I am not sure why I would sell, my only apprehension is that I have not personally managed a 32 unit like this before.
Everything else I own is single family rentals.
Thanks
Jim
Thanks everyone for your perspectives.
Jim
What figure you should be looking for depends on the type of purchase you want to make.
First, establish what type of investment project do you really want to work with. Do you want to buy a rehab project which may have plenty of room to increase income, but only by spending time and money; or do you want to just buy a good cash flow? This helps determine the acceptable ranges for your gross and net...
Exact numbers vary based on your location, but if you were trying to decide to buy a $1MM, 25 unit apartment complex, you might look at it this way:
If you want to buy an apartment building without putting a lot into it, decide on your target cap rate with an understanding of what is considered a good rate in that location. In some areas, it is considered good to get a 7 cap, in other areas, it might be a 9, ect.
Working backward from that, we know that a typical apartment complex will generally have expenses that can range from 40 to 60 % of the gross. If you have decided an 8 cap will be the lowest acceptable figure for you, then you need to see a net income of $80,000. You would then expect a gross of about $160,000, + or - about 10%.
Your $14k/mo gross is in the right range, but why is the current net profit substantially lower than you would expect?
Depending on what you want, this particular property represents an opportunity, or a poor choice. You would expect to see a net of closer to $7k per month, so which of the expenses is higher than the norm? Does it seem probable you can lower them? The answers to those questions should help you decide if you want to pursue it.
What is your goal for the property?”
“How Much Return on Investment are you Seeking?"
A solid,realistic,specific answer to this question is a good indication of the strength of the deal