44-unit Apt complex - Posted by Dave T

import · October 24, 1998, 12:51am

Posted by MJS on October 28, 1998 at 13:22:47:

Hi dave Mike here
It sounds like you have a decent opportunity here
If nothing else Go ahead and set it up and sell it to an investor or someone else after three months.
If you have a years contract you should not have to worry about selling it for at least a few $$.
You will acquire some experience
And from what I read from this page it is the most valuable tool for us.
Maybe JP can have you set it up in the players page and maybe they can help with some type of partnership.
The deal sounds half way decent if you have one year guaronteed income.

At least put the deal together and sell it if nothing else
You do have and or assigns in your purchase agreement.

import · October 24, 1998, 12:51am

44-unit Apt complex - Posted by Dave T

Posted by Dave T on October 24, 1998 at 24:51:36:

I made an appointment with a realtor Monday morning to go look at a 44-unit apartment complex that is for sale. Complex is located near an airport and a local university. I did a preliminary pro forma today and ran it by the commercial loan officer at my bank. I am projecting 15% cap rate and debt coverage ratio of 1.5. Loan officer said that if the numbers stand up, I can get 100% financing. My offer will be approximately 67% of value at a 10% capitalization rate.

If I purchase, a local aviation trade school will guarantee 100% occupancy at market rent for one year to use the apartments as student housing. All apartments are 2BR-2 bath. Complex is 11 years old with some deferred maintenance (mostly paint and carpet). Parking lot was resurfaced recently. After the year is up, the avaiation school will lease anymany units as they need for student housing. The rest, I plan to market to the local university nearby as student housing. If I can get a net-net lease, even better.

Besides geting an appraisal, a building inspection, and seller’s income and expense statements what else should I consider invetigating before inking the deal?

import · October 24, 1998, 2:34pm

Re: 44-unit Apt complex - Posted by Mr Donald (NORVA)

Posted by Mr Donald (NORVA) on October 24, 1998 at 14:34:34:

If you can do a triple-net lease, then make it so. You’ll be laughing all the way to the bank. Anything less then this, and it’ll be a headache for you to maintain, administer and upkeep.

import · October 24, 1998, 7:15am

Re: 44-unit Apt complex - Posted by phil fernandez

Posted by phil fernandez on October 24, 1998 at 07:15:58:

Dave,

A couple of things here.

1./ Have you ever owned an apartment complex this large. If you are a beginner this size property is too big.

2./ Verify verify verify. Have you checked and verified income, vacancy rate ( I know for now you will rent the whole complex to the school, but that might not be the case down the road ), expenses including reserves for replacement. The reserves will be substantial in a property this large. Check and recheck your numbers at least a dozen times to make sure you have not left out any expenses.

import · October 24, 1998, 11:02pm

Re: 44-unit Apt complex - Posted by Dave T

Posted by Dave T on October 24, 1998 at 23:02:55:

At the moment, the school wants only a standard lease but may consider a double net lease. However, they will only guarantee one year. If they would go for six years I would seriously consider.

An alternative is to buy the entire complex and do a condo conversion. Each unit is built to condo specs. Potential profit is 20K per unit going this route but I am afraid that my inexperience in a condo conversion, carrying costs, 40K in deferred maintenance and an uncertain retail market intimidate me and would surely eat away a significant portion of my potential profit.

For all the reasons cited above, I will pass on this deal. Thanks for your input to my question.

import · October 24, 1998, 11:14pm

Re: 44-unit Apt complex - Posted by Dave T

Posted by Dave T on October 24, 1998 at 23:14:52:

Thanks for the feedback. I got a one year income and expense statement today has good numbers, though the expense were larger than I had expected…

The annual rental demand in this area is very strong but you are correct about the maintenance reserves. When I factor all the numbers to include a healthy maintenance reserve, my net cash flow is no better than three or four SFR rentals combined.

The reward is not great enough to undertake a risk this large. Since the seller’s minimum acceptable cash price is $1.25 million, I could generate the same net cash flow for a lot less with SFRs.

Thanks for taking the time to reply to my quesion.

import · October 26, 1998, 8:08pm

Re: 44-unit Apt complex - Posted by Harvey Carroll, Jr.

Posted by Harvey Carroll, Jr. on October 26, 1998 at 21:08:53:

Take another look at the project. Keep it simple, don’t change the thing too much. If it is working and paying the bills then let it pay them and build up your equity. At this location if anyone moves out then the residential rentals will quickly fill up provided you have comperable aminities, i.e. laundry rooms, possibley an exercise room. As far as the commercial/retail then consider those as very marketable for the airport business traffic…
If this is in Lexington, KY I would be glad to look at the deal with you…