Need Some Advice On Opportunity

Hi all.
Been reading a lot of posts here, but first time posting. Looking to invest in my first multi-unit apt building.

I have an opportunity to purchase a 3 unit apartment building. I can buy it for about $155k, and the current owner says it was appraised at $205k a year ago. However, I think that appraisal is a little inflated, since he purchased it himself in 1995 for $100k. Hard to get comps on similar properties, since all nearby are single familiy units...but they are selling for the $160-170k range. Not sure why he is getting out, other than he had a partner (since seperated) and taxes have been delinquent numerous times in his ownership history.

Two of the three units are rented and the third is ready to rent, just having been rehabbed. Positive cash flow with all three units rented would be about $400-500 per month...two units rented would cover monthly mortgage, insurance and some of tax.

Does this sound like a good deal? I think it is, but I have that nagging question of "what am I missing?" Are there any costs I should be aware of that I didn't account for?

Thanks;


John

Comments(4)

  • commercialking15th May, 2004

    John,

    You don't give us enough information to help you here. What do the apartments rent for each? What are you figuring for debt service, what for expenses?

    Personally I like the following form

    Income XXXX
    (x apartments at yy per month)
    Vacancy rate -xxxxx
    Adjusted Annual Rental income yyyyy

    Expenses
    Taxes xxxxxxx
    heat xxxxxx
    electricity xxxxxxx
    maintenance xxxxxxxx
    management xxxxxx
    Etc
    Total Expenses xxxxxxxxx

    Net operating income XXXX

    This makes it possible to tell at a glance what the assumptions are and what the net income is. without all this information its really difficult to advise you on this oportunity.

  • jwalko15th May, 2004

    CommercialKing:

    That formula is what I have been looking for...thanks.

    This is a three unit apartment building. Two of the three units are currently rented (under contract until August), and the third has just been rehabbed and is ready to rent. One of the units is $550, one is $625 and the third is $650 (the vacant one). So potential monthly is $1825. PITI is estimated at $1254. All utilities are paid by tenants (each apartment has own furnace), except water. I would manage myself. And the guy who lives in one of the apartments does some of the handywork around the place, including keeping the grass cut...don't know if he gets a reduction in rent because of this...need to find out.

    Sounds like I would have positive cash flow of about $575 per month, but again, I have that nagging feeling I am missing something. Oh...and I have no way to figure % of vacancy...if one of the units is vacant, I have a small negative cash flow, but can cover it. If two units were empty, that would hurt a little bit, but I could handle it for a few (maybe 6) months.


    John
    [quote]


    Income XXXX
    (x apartments at yy per month)
    Vacancy rate -xxxxx
    Adjusted Annual Rental income yyyyy

    Expenses
    Taxes xxxxxxx
    heat xxxxxx
    electricity xxxxxxx
    maintenance xxxxxxxx
    management xxxxxx
    Etc
    Total Expenses xxxxxxxxx

    Net operating income XXXX

  • Stockpro9915th May, 2004

    When vacancy rate for the area is unknown then figure 10% as a rule of thumb.
    Look at the owners schedule E for and idea of profit and an expenses claimed last year.

    Be especially aware of deferred maintenance on roofs or in the units themselves.

    [addsig]

  • 64Ford17th May, 2004

    A great "calculator" can be found by clicking "Tools" at the bottom of this page. Then click ProForminator. Input numbers, and it will analyze and tell you if it is a buy or a pass. Good Luck!

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