Posted by Bill Taylor on May 21, 2005 at 12:19:48:
Thanks for the info it is nice to have some additonal insight when making a decision. I also have small complexes or have had in the past 3-4 unit buildings. I think this is somewhat similiar and then again quite a bit different. This going to be a new adventure and at this time I am looking forward to it.
Complex decision. - Posted by Bill Taylor
Posted by Bill Taylor on May 21, 2005 at 10:35:24:
Gross Income $818,813
insurance 21591
util 98000
rep and maint 62000
mkt and promo 2198
on site payroll 35560
mgt fee 37763
gen & adm 7300
repl and reserves 29200
acct fee 880
tot expenses 362670
NOI 456143
They have reduced the price from $4975000 to 4.7 mil.
do I have it right this would be a 10.3 cap rate. Would this cap rate be what is considered reasonable as far as investments go with apt complexes. These numbers are from 2003 and there is no way I woild go with these since our taxes have jumped up in some cases 100% here in Indiana. Also the inusrance rate seems quite low compared to somehting that was quoted to me yesterday on a 50 unit complex and it was at 36000 a yr with 1000 deductable. The ann rate went down to 26000 if I increased the deduct to 75000, I thought oh great(lol).
All advice would be appreciated as to if there was anything that I should be looking for that was not presented. Thanks, not only am I itching to buy a deal but will need to since I have some 1031’s that are also itching.
Re: Complex decision. - Posted by Commercial Investor
Posted by Commercial Investor on June 13, 2005 at 18:19:17:
Based on the numbers you provided and the follow up describing the rents per unit and annual taxes, I calculated a cap rate closer to 9% which is still good and a cash flow of almost $100k per year. The analysis ( http://www.rentincome.com/105.pro.html ) at RentIncome.Com seems to support this, but I would be concerned about the large amount of money needed for expenses. The one number that usually gets large is the expenses especially when you are paying the utilities. The numbers you have now look good, but the numbers you get when you own may not look as good.
Re: Complex decision. - Posted by Don Dion
Posted by Don Dion on May 21, 2005 at 12:22:49:
Your not showing any real estate taxes in your list. How many units are in the project?
Do you have listing sheets on 3 to 5 comps to the project your looking at? With the comps you can do the math to determain the local cap rate to use for this project.
What down payment % are you planning?
I have put in the nubmers to crunch that you have supplied and get 1.29 debt ratio which will go down once the real estate taxes are inserted, the lenders will be looking for 1.20 min.
Another key item that would be needed is a local rental survey to see if the current rents are at or below the local market rates for comperable units.
Re: Complex decision. - Posted by jimmy
Posted by jimmy on May 21, 2005 at 11:45:50:
here are some thoughts. caveat: I do not own big multi-family apt complexes. My experience is with lots of 1-4 units in scattered locations. but here goes:
I do not see a vacancy factor in your numbers. In my experience, this is the second most killer expense, behind debt service. I do not know your area, but on my turf, 10-15% vacancy is the norm.
I also do not know how your local taxing authority works. On my turf, the appraisal districts are getting quite skilled at bumping valuations after a sale. so much so, that I now budget my taxes as if a reassessment to my purchase price will occur immediately.
can’t comment about cap rates. they are very location specific. but… the older the complex, the higher the cap. the more neglected, the higher. the “worser” the neighborhood, the higher.
how diversified in the local economy? how dependent are you on particular employers. How vulnerable are you to a recession in a particular industry? I had a pipe foundary shut down by the EPA, and my little 4-plex sitting across the road went empty for 6 months. Ouch! Even in a big city like Indianapolis, you can get in an outlying region where a single employer is really important to you. So pay attention.
4.5. How diversified is the tenant base? Ideally, you will have a good mix of elderly tenants, working stiffs, and a few Section 8’ers. Elderlies are the best tenants, by far (in my opinion).
Explore the area a mile in all directions. How many other apartment complexes are there? How full are they? Do you see signs offering “free rent” or “no deposit” or other incentives. If so, this indicates a weak rental market. and how does your complex compare? covered parking? nicer? better location? square footage? recent renovations? take a close look at your competition. you can learn a lot about your own property that way.
Is there any way for you to cut/eliminate the 98K annual utility bill? How much of an investment would it take to separate the meters (or whatever) to puch the utilities onto the tenants? A 500K investment would be worth it if you could kill a 100K anual expense.
snow removal expense? I lived in South Bend for one winter, and I was amazed at the volume of snowfall. what part of IN are we talking about?
Do you have Section 8 tenants in the mix? if so, take a look at the rents they are paying. are they above market? if so, make a downward adjustment, because these rents are not sustainable. And housing agencies all around the country are facing budget cutbacks. I am aready seeing it. All of my tenants are having their vouchers cut back 5-10%. The more dependent you wil be on housing, the higher the cap rate you should demand.
Call the local police department and see how often thay have been called out to the loation. and find out why. cops can be wonderful sources of candid, real information.
good luck.
Re: Complex decision. - Posted by Bill Taylor
Posted by Bill Taylor on May 21, 2005 at 14:17:26:
Great questions. I failed to provide the taxes and they are 68178 a year.
84 unit with 60 1 br units 475 mo rent
24 2 br units 575 mo
35 unit with 5 unit 1 br at 405 mo
29 units 2 br 425 mo
28 unit with 24 1 br units 475 mo
4 2br units 575 mo
the total possible rent seems to be 856140 and they have 806813 coming in and that would compute to about a 6% vacancy. they also have 12000 a yr in laundry income. I do not have a local rent survey how would you do one? I will be putting down the 20% down payment but would expect a return on that as well. Thanks for your interest and information. Not sure of the actual numbers currently on this deal since he only provided numbers from income expense for 2003