6 Unit "Apartment" - Your input please! - Posted by Jim-WI

Posted by Jim-WI on March 31, 2000 at 23:52:01:

The inside of the units look fine. It’s an older building so there is some wear and tear on the units/building. The current owner has pretty much kept up the common area building maintenance. Some of the units need to be painted. 5 of the 6 units have cats and there is a definite urine smell in some of the units. One of the units has an ancient fridge and stove. Other than that all else seems ok.

The financing for the unit is a simple 30 yr loan at an assume 8.5% interest based on the full price of $135,000. I haven’t had the place inspected YET.

We are really early into this and have not had an appraisal done on the property.

Thanks for any more feedback that you can provide!

6 Unit “Apartment” - Your input please! - Posted by Jim-WI

Posted by Jim-WI on March 30, 2000 at 18:41:12:

In an attempt to live the Cashflow game and build up our passive income to exceed our expenses… my wife and I have been looking at multi-family units.

We found an opportunity that used to be a storefront but was converted into a 6 unit “Apartment” many years ago.

Gross rents are $2200/month with net rents of about $1600/mo. It is FSBO for $135,000. Now if we were to purchase this at his full price (ouch I hate paying full retail)then our mortgage would be about $1130/mo. Our cashflow would thus be about $470/mo.

The “apartment” has a good rental history. There have been very few vacancies. In fact most of the people have been living there at least a couple of years.

The seller has agreed to provide me with his schedule E from his tax returns for the last 2 years. But he did tell me that he was a little creative in some of his expenses, i.e. he bought a computer and called it a repair. So I don’t think they will be of much use to me.

What do you all think about this?(my wife is really excited about it) The cashflow is there and I can verify that part on his schedule E. What am I missing??? This is my first time with a multi-family.

Thanks for all your input!

Re: 6 Unit “Apartment” - Your input please! - Posted by Steve C., Houston

Posted by Steve C., Houston on March 31, 2000 at 12:44:04:

First: NEVER pay retail! I’ve never met an asking price I liked. But run some comps on the building and the rents to get a grip on it.
Second: If this was a do-it-yourself conversion, is it up to code?
Third: If it’s such a great deal, why is he letting it go?

Best of luck!

Re: 6 Unit “Apartment” - Your input please! - Posted by JD

Posted by JD on March 30, 2000 at 21:31:18:

I have owned rentals in the Milwaukee area (I seem to remember you saying that is where you live). The property tax rates there are the second highest in the country (US Dept of Commerce survey), and they vary alot from hood to hood. Water/sewer is very high also. Double check those expenses. I seem to remember a 5xGRM to be typical for such a property in that area.

Re: 6 Unit “Apartment” - Your input please! - Posted by Steve(NY)

Posted by Steve(NY) on March 30, 2000 at 21:13:38:

Jim,

I didn’t see taxes or insurance factor’d into the payment. Or was that in the difference between “net and gross?” $470/month cashflow is pretty skinny especially on an older building. Based on the current rents I’d say that the price is to high. If you had a vaccancy for a couple of months you might find youself dipping into your pocket. That’s not fun!

Good luck.

-Steve(NY)

Re: 6 Unit “Apartment” - Your input please! - Posted by ccreed50

Posted by ccreed50 on March 30, 2000 at 20:26:11:

Sellers lie. Talk to the utility providers to determine the actual costs of carrying the building. Verify the rents–get an estoppel letter–or at least talk to the tenants. At best, you want to see their canceled rent checks, though they probably use money orders.

Sellers conveniently forget to factor in reserves for things like leaky roofs, busted boilers, etc. Tenant damage can suck up your cashflow fast–what’s the inside of the units look like?

What’s the deal on your financing? Is it locked in? Have you had it inspected? A good inspector will point out where the thing is insidiously sliding off its foundation where you or I wouldn’t necessarily notice. Don’t ask me how I know this.

What about the appraisal? The lender will want their own MAI appraiser in there–your close needs to be long enough to accomodate this or you will be sucking wind. Again, don’t ask…

These types can be the sweet spot if you pick them up right. Your seller may need a little beating over the head on price. Or maybe a touch of carryback if it doesn’t appraise. Good luck.

–CR

Re: 6 Unit “Apartment” - Your input please! - Posted by Jim Rayner

Posted by Jim Rayner on March 30, 2000 at 19:30:22:

Jim, At a quick glance this looks like a deal with some potential but here’s some more questions that come to mind:

The expenses look a little light or do the tenants pay utilities
Check the zoning is the current use conforming
What is the break down of the type of units
Are the current rents at fair market value
What is the area vacancy rate
What is the area demographics
Are there Defferred maintenance issues that need to be addressed
What do you consider a reasonable return on your investment(cash on cash)

without these answers a determination as to the soundness of this deal is not possible but from the information you have provided its certainly worth a longer more detailed look.

Re: 6 Unit “Apartment” - Your input please! - Posted by Jim-WI

Posted by Jim-WI on March 31, 2000 at 23:31:22:

First: NEVER pay retail! I’ve never met an asking price I liked. But run some comps on the building and the rents to get a grip on it.
Realtor comps say it is worth about $140,000.

Second: If this was a do-it-yourself conversion, is it up to code?
It was converted many years ago. Maybe over 10 years ago. Fire inspectors come through every so often to look at the building et al. No problems reported to me by the owner. Assuming it is up to code… where would I look for the info?

Third: If it’s such a great deal, why is he letting it go?
He works for Kimberly-Clark. He says he is due for relocation soon. He has 3 or 4 kids and a wife. His wife wants him to spend more of his free time with them and less at the apartment, ie no more saturday afternoons, et al. Also his wife wants a cottage up north. He says if his wife wasn’t making him sell the place he wouldn’t!

Re: 6 Unit “Apartment” - Your input please! - Posted by Jim-WI

Posted by Jim-WI on March 31, 2000 at 23:42:19:

I just checked some of the numbers… it looks like the taxes, insurance, and utilities are included (water and radiated water heat).

Thanks for anymore of your feedback!