Posted by Randy on November 08, 2004 at 15:53:19:
I think you are way off on your maintanance expenses. One bad moveout can cost thousands, and with 60 units you better expect a couple of move outs per month. I have half that many units and I spend many times that on maintanance.
60 Unit Apartment for Sale - Posted by Lion NC
Posted by Lion NC on November 08, 2004 at 10:25:24:
Hello,
This seller no longer wishes to manage the 60 units and wants to sell them to me. They are located in SW Atlanta, GA.
Units are all identical with a 1 bdr townhouse style. Kitchen and living room are down stairs and the bedroom and bathroom are up stairs.
Owner is asking for $1.6mm. The owner needs $500,000 cash and will carry the remaining $1.1mm on a 30 year at market interest rates.
Expenses
Insurance: $21,600
Water: $36,000
Taxes: $13,200
Sewer: $22,800
Utilities: $12,000
Maint.: $12,000
Employee $14,400 (part time maintenence man. I would manage the property myself)
Total: $132,000
Rent $425 per @ 91% occupancy
Rental income: $280,500
NOI: $148,500
Cap Rate: 9.2%
I don’t yet know what to expect from lenders, so I didn’t include dept service. Any guidance here is appreciated.
I’m not sure that this is a deal as it stands but I believe there is upside. Rents seem a bit low for the area, and I’m told that they can be increased as a surcharge to water billing increases that are being implemented throughout Atlanta. Owner told me that other investors were making offers and that one had a plan to make the units two bdr there by cutting the total number of units down to 30. And another investor had a plan to build 60 more units on the property. All of this gives me the impression that there is plenty that can be done with these apartments even if not according to those plans above.
I would like to build up the value of these units over a year or two and then sell for a handsome profit, then move on to the next project.
I have excellent credit and about $30k in a 401k. I don’t want to feed the desire to acquire, but I am hoping this is something worth pursuing.
I realize there are plenty of other factors to consider, but I’m hoping I provided enough info to garner some guidance as I’ve never done anything like this before.
Your thoughts?
Thank you,
Lion NC
Re: 60 Unit Apartment for Sale - Posted by Dave Hayes
Posted by Dave Hayes on December 20, 2004 at 11:40:38:
As far as minimizing your cash outlay up front, while getting the seller the cash they need to be able to carry the rest, you could put down half that amount, and have the seller structure two owner financed liens, a first that is purchased at close, getting the seller to a higher cash position than they would have otherwise achieved, and a second that they would retain to maturity, providing cash flow.
Just a creative financing strategy for your consideration, if this deal is still around.
My best, Dave
Re: 60 Unit Apartment for Sale - Posted by Atlanta_bob
Posted by Atlanta_bob on December 05, 2004 at 21:14:35:
Hi Lion NC:
At first glance, the financials look really good on this 60 unit apartment complex: 9% vacancy; GRM at/near 5.2; Cap Rate at/near 9.2%; Expenses at/near 47% of Effective Gross Income (EGI); Debt Service Coverage Ratio (DSCR) at/near 1.67 ($1.1M loan at 7% for 30 years).
However, the real estate taxes (at $13,200) appear very, very low for Atlanta/Fulton County (by a factor of 3). Like Randy mentions, the maintenance expenses also appear low (by a factor of 2). So, if real estate taxes are closer to $39,600 and maintenance expenses are closer to $24,000, then your total Expenses have ballooned to 61% of EGI and your DSCR has plunged to 1.23. Those financials are getting pretty scary. If vacancies are higher than 9%, the financials get much worse, very fast.
Best to complete your due diligence and confirm all income and expenses. Check income to learn about actual vacancies; check expenses to see if you have enough money left over to pay the mortgage each month. Yep, due diligence is very important. BTW: You won’t get much more than $425/mo for a 1BR/1BA apartment located in SW Atlanta (Fulton County?), especially if most tenants are Section 8 (IMHO).
Hope this helps.
Atlanta_bob
Re: 60 Unit Apartment for Sale - Posted by Baltimore Auctioneer
Posted by Baltimore Auctioneer on November 13, 2004 at 21:57:29:
I like your deal and think it is do-able, but I also believe you have a way to go with your negotiating with the seller.
I would suggest getting CONTROL of the property at a price and terms that make financial sense to you as buyer and to the seller.
Charles/Baltimore