Would you buy this 4 plex? - Posted by batpro
Posted by batpro on April 26, 2007 at 08:52:43:
An old brick building on a main street in a small town 5 miles from a larger town (turning into a city, growing rapidly) went up for sale a week ago.
It is a 4 plex. 3 - 2 bedrooms and 1 - 1 bedroom. All apartments are really spacious. The entire building has brand new electrical. The tenants pay electrical. The building has a new natural gas water boiler for heat but the landlord pays this (ouch). The property is in N. Minnesota so the heat bill really cuts into the profit potential. Is there any way to meter off the heat without having to buy 4 separate boilers? All windows are new within the past 2 years. It has a flat roof, I have not checked that out yet but the owner says he has never had a problem with leakage, the basement was dry and seemed the foundation was in good shape.
The building was built in 1907 and from what I can tell was a hotel before. It is a combination of plaster and drywall. It is fully rented now and the owner says he always has it rented but his rents are really low so I can see why he has no problem renting it.
The apartments pretty much all need new floor coverings, paint, and drywall/plaster repair. The one bedroom could be made into a two bedroom with about a months worth of work. Other then that it did not seem in too bad of shape for the price.
Interesting is 1 block away a another 4 plex (same size lot, same size building) went pending at $158,000. However that one has all new drywall, paint, completely remodeled and the tenants all had their own heating bills.
Asking Price for the 4 plex I’m considering: Only $79,000
Income monthly year
rent $350/unit $1,400 $16,800
Proposed rent $425/unit $1,700 $20,400
Landlord pays heat, garbage, water&sewer, taxes, insurance.
water & sewer $2,928
Vacancy 5% $840
Repairs estimated $1,200
expenses total 12,408
current rent NOI $4,392.00
Proposed rent NOI $7,992.00
Now if I offer $65,000 and put it on a 30 year fixed this is how it looks for my profit after paying the mortgage every month.
offer mo/payment yearly
$65,000 $440 $5,280
Amount received after expenses & mortgage
Yearly Income year
gross income - (expenses + mortgage) = -$888 - (it is negative at current rents)
gross income - (expenses + mortgage) = $2,712
Cap Rate current rent 7%
Cap Rate Proposed rent 12%
If I could get the heat bill into the tenants names then the cap rate at a $400 ave. rent/unit would be ~17%. However, it could cost maybe $10,000 to change the heat system.
Ok, what do you experts thing, should I make an offer on this place? How does it look?