Author Topic: apartment complex evaluation?  (Read 2239 times)

BooksAreNerdy

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apartment complex evaluation?
« on: February 14, 2015, 11:07:36 AM »
DH and I are interested in having rental property now and in retirement.  We do not currently have any properties. Due to economy of scale, it seems most desirable to have triplexes or small apartment complexes. We are quite capable of managing and maintaining them ourselves.

So, we browse realtor.com frequently and have been eyeing a 24 unit complex. It has 14 one bedroom units and 10 two bedroom units. The one beds are rented at $390 and two bed at $430/mo. It is listed at $850k. The listing says it is fully rented at $10340/mo.

We do not have 20% to put down for the property. So, at this point it is all speculation and learning.

So, if the property sold at $850000, it would need to earn $8500/mo in rent to meet the 1% rule. So that is a green light.

Assuming 100% financed at 6.5%, the P&I is $5372. Property taxes are around $9400/year. I guessed insurance would be around $8500/yr. So, monthly it would cost $6864. Half of rents ($5170) go to everything except P&I and the other half if is P&I and profit, right? So, this situation does not get the red light. Right?

At an $800k purchase price, the P&I is $5056, which is $114/mo in profit. Is that enough of a profit to make it worth it?
At $765k (90% of asking price), P&I is $4835, which is $335/mo in profit. Is that enough profit?

What would make this complete profitable? I see a lot of places around here renting in the $5-600 range for SFRs.

Is it OK to assume maintenance would be lower on a single building than on 24 SFRs? Is it OK to plan for most maintenance/management to be done by our selves? How do you adjust your 50/50% spread to figure profitability with those assumptions?

I can post the address of the complex if that makes any difference.

I totally guessed on the interest rate and insurance costs. Was I right to figure these numbers as if 100% was financed? Do banks typically require 20% down?

Thanks for the info!

waltworks

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Re: apartment complex evaluation?
« Reply #1 on: February 15, 2015, 07:16:49 AM »
Multi-family has much higher costs (turnover, eviction/legal, management). Look for ~2% properties there.

-W

Another Reader

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Re: apartment complex evaluation?
« Reply #2 on: February 15, 2015, 08:28:16 AM »
Properties with over 4 units require commercial financing.  The terms are a lot less favorable.  Operating expenses are usually much higher, especially if the landlord is responsible for any utilities.  With 24 units, you will have common areas, such as parking and landscaping, that you will have to maintain.  Two percent per month is the gross rental income you want to get to be profitable.

A good place to start is to read some of the books on the list at the top of this forum category.  If you have a decent real estate investors' association in your area, attend a couple of meetings and join if it is helpful.  Make friends with a couple of investors.  Learn as much as you can before you write that first check.

Setters-r-Better

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Re: apartment complex evaluation?
« Reply #3 on: February 15, 2015, 09:56:26 AM »
Lots higher costs, I agree 1 percent rule would not be sufficient.  100 percent financing is also not going to happen.  You would be asking them for historical expenses,, thinking about what cap rate you want. 

thebeachbum

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Re: apartment complex evaluation?
« Reply #4 on: February 16, 2015, 09:57:48 AM »
If you are going to manage it yourselves, you may be able to get under the 50% rule, but you probably need to be over 2% to be profitable. Commercial property means commercial costs, that's higher financing costs, higher repair costs, and higher maintenance cost. You should check out BiggerPockets.com there are a lot of really smart people who have done this many times over that share their advice and experiences. Also, "the ABC's or real estate investing" rich dad poor dad book, does a good job of explaining the process of buying, and valuing apartment complexes, i found it very easy to understand and useful, as well as questions to ask that you man not have thought of.

To me this property doesn't look like a green light, but hopefully you can find one that is. Best of luck to yall, and make sure to post about whatever yall end up doing, i am interested to see how it turns out.

arebelspy

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Re: apartment complex evaluation?
« Reply #5 on: February 17, 2015, 12:56:12 PM »
Many of your questions come from a residential background.

Commercial is different. 

You need to familiarize yourself with cap rates (and find out what the rates for them are in your particular area, as they're very local) and start there to see if the price/return is reasonable.
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jmusic

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Re: apartment complex evaluation?
« Reply #6 on: February 17, 2015, 04:01:58 PM »
I'm in a similar situation to you, and while a 24 unit property seems like an outstanding idea, I think it should be viewed as a "goal" property, especially since you do not own any properties (have you ever owned rentals before??). 

For me, I'm saving up $$ for a downpayment on a 2-4 unit property when I move to Virginia this summer; I'll live in one unit while renting out the remainder.  I'm going in with the intention of learning and if I make money at it, that'll be a great bonus.  Eventually I'd love to 1031 my way into progressively larger properties until I could get a complex like you describe, but with a substantial equity position.