Help With Possible Deal
Ok I am looking at my first apartment complex that has 50 units. The owner lives out of town and doesn't make much cash flow on it and wants to sell. He has a management company running it, however they don't even have someone on site. If someone wants to rent the have to go across town. I would get a different management company. There is a mix of 2bed/1bed/studios rent range from 300 to 465. The loan is assumable and ballons in 2008. If I assumable what closing cost should I be looking at? The price is 1.3 million and tax value is 1.5million.
My questions is the, since the building was build in 1990 shouldn't the units have HVAC? The brokers said they have baseboard heat and AC window units? Does this sound right for the age of the building? How costly would it be to upgrade 50 units to HVAC or maybe do a condo conversion? Since this is my first apartment deal should I get a broker to help, because the owner has a broker working for him? The cash flow is only about 2k a month. I was hoping that a new look and some TLC this place could bring in much more. Any thoughts?
Does this should like a work able deal?
How much debt are you assuming and on what terms? What is the payment on that debt?
I would be assuming 1.183 million. It is fixed at 6.95% and ballons in 2008. The listing price is 1.3 so trying to figure out what I should offer to see if he is moviated or just selling at market value. The tax value on the property is 1.5 if that helps.
Well, assuming you were to put $100,000 down to come to the mortgage balance your cash flow would be a 24% annual roi. Not a bad deal at all.
However its likely that that $2,000 per month would evaporate pretty fast if you start upgrading and putting in new HVAC units (figure $2,000 per unit). Still, especially if its managed as badly as you say and you've got some cash for the upgrades it sounds good to me.
The other thing to remember is that by the time 2008 rolls around we are likely to be in a higher interest rate market and that could further impact your cash flow.
You might also think about managing the property yourself at least for a couple of years. Save a sizable management fee which you could then direct toward upgrades resulting in higher rents. Then hire your management company.
Thank you for your advice. The higher interest rates are a concern. Does it make sense that someone would build a building in 1990 and use baseboard heat? Another possible idea was to turn them into Condo's and resell. It might be hard for me to come up with the 100,000 for the down payment. I was thinking about putting an ad in the paper for other investors to put the money up.
Maybe I could try a subject 2 or lease option, even though I have never done one before.
Do you have any other suggestions? When you look at apartment units what are your biggest concerns? ROI, Price per unit or cash flow?
One more thing I forgot to ask was should I get a broker to represent me, since the owner has one? Or do I have the broker who has the property listed show it to me. I just didn't want some kind of compflict of interest going on.
I do not think you should have the brokerthat the seller has show you the property. They are only looking to sell it to you and make their commision, so that broker may not show you the bad spots. Also, when getting into a large deal like this one, you want to think about the experience you have in this area, can you manage the property alone? Can you settle disputes among multi-family units? Is only $2000, 00 per month worth the hassel and risk? And finally, as condos, What kind of RIO can you get per unit, and, can you find buyers quickly? Remember, some deals may seem great, but if it is too big for you right now, maybe you should pass on it. I do not mean to discourage you, I don't know what you can handle, but I started into real estate investment looking at a $4million apartment complex, and it was going to be way to much for me.
It sounds workable, but you should thoroughly investigate why it has not made much money to date.
Does the current owner have a prepay? If not, why would you want to assume his loan if you are going to be forced to refinance within a few short years?
Let me know if I can help answer any specific questions.
Jeff Weatherspoon
[No advertising in signatures, please. See Forum Rule #2][ Edited by NancyChadwick on Date 06/01/2004 ]
Is the loan assumable "subject to buyers credit."
What's the assumption fee
Is it full recourse (come after your personal assets)
Get a broker and work him on kicking back some commision.
Are you looking at utilities owner pays
property tax
state / local landlord laws (in CA if you have >15 units, you MUST have an onsite manager which eats into your margin)
Does the 1st require the management of a certain LTV (e.g. if you bought it for the note value, you'ld have 100% LTV.