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Started By
Message
Possible Apartment Complex Purchase
Posted on 10/19/12 at 8:07 pm
Posted on 10/19/12 at 8:07 pm
I have come across a scenario where a friend of mine wants to get rid of his apartment complex. I have a huge interest in real estate so I have been talking to him for the past three months and now he wants to work with me to sell his complex. His reasoning is he wants to concentrate on his other businesses.The complex is 59 units, is built in 1980, is fully occupied and needs much maintenance work.It is located in the River Parishes and is bound to be always occupied. I am not looking to make any money on it until 5 or 6 years have passed. We have agreed that the deal will be a lease purchase as to reduce his tax base. (I do not intend to sell until after 40-50 years)There will be a downpayment of 150k and lease payments of 15k per month for 3 years. There will be a balloon of 30k at the end of each year for first 2 years. The sell price at the end of 3 years will be 1.6 mil. Our initial price for the complex is 2.1mil. The current owner will owner finance the deal at the end of two years at a fair market interest rate. The units bring in an average of $575 per unit (total 59 units). Money board, I need your help on this matter on whether this is a good deal for me or something I should step away from.
I also want to add in that I have my own labor that can help with things such as flooring, sheetrock, and cabinet work. I will never have to hire a contractor to do these things.
I also want to add in that I have my own labor that can help with things such as flooring, sheetrock, and cabinet work. I will never have to hire a contractor to do these things.
5
Posted on 10/19/12 at 8:30 pm to stunna87
59 units x $575 = $33,295 a month
$33,295 x 12 = $399,540 a year
Any idea what expenses are?
Real Estate Tax
Building and Liability Insurance
Common area utilities
advertising
onsite management (is this you)
payroll taxes
legal fees
accounting
maintenance
supplies
repairs
office expenses
trash collection
grounds maintenance
replacement reserves
misc
So many expenses associated with a property that size and they will run from 40% to 70% of your effective gross income.
If you'll send me his last 3 yearly Pro Formas I can really help you out.
$33,295 x 12 = $399,540 a year
Any idea what expenses are?
Real Estate Tax
Building and Liability Insurance
Common area utilities
advertising
onsite management (is this you)
payroll taxes
legal fees
accounting
maintenance
supplies
repairs
office expenses
trash collection
grounds maintenance
replacement reserves
misc
So many expenses associated with a property that size and they will run from 40% to 70% of your effective gross income.
If you'll send me his last 3 yearly Pro Formas I can really help you out.
Posted on 10/19/12 at 9:15 pm to I Love Bama
I have this information so far...this is from last years expenses:
Real Estate Tax: $12,087
Property Insurance: $30,000
Management:I will handle this
Payroll: $34,000
Repairs/Maintenance: $34,000
Utilities
Phone: 600
Gas: 1,480
Electric: $15,000
Water: $37,500
Accounting: $1,500
Contract Services:
Trash: $6,200
Lawn Care:$ 5,700
It leaves it with some cash flow, but the variable here is exactly how much maintenance will have to be done and if I can keep it occupied to the max as it is right now.
Real Estate Tax: $12,087
Property Insurance: $30,000
Management:I will handle this
Payroll: $34,000
Repairs/Maintenance: $34,000
Utilities
Phone: 600
Gas: 1,480
Electric: $15,000
Water: $37,500
Accounting: $1,500
Contract Services:
Trash: $6,200
Lawn Care:$ 5,700
It leaves it with some cash flow, but the variable here is exactly how much maintenance will have to be done and if I can keep it occupied to the max as it is right now.
Posted on 10/20/12 at 6:19 am to stunna87
dang I bought a unit this past summer, it has already had its ups and downs. Been a pain in the arse sometimes but overall, I am happy with my decision. On the ULM campus so always be rented out.
Posted on 10/20/12 at 6:42 am to stunna87
If you are at 100 % occupancy, drive up your rates. It doesn't matter what the competition is doing at this time, you have a chance to really impact your revenue and net operating income.
Posted on 10/20/12 at 8:08 am to stunna87
I'd be really worried about interest rates in 3 years when you have to go find a loan.
Posted on 10/20/12 at 10:04 am to stunna87
What sort of return are you looking for?
Posted on 10/20/12 at 10:12 am to FredSecunda
I do not have a set return of investment goal that I am looking at here since the only thing out of my pocket is the downpayment of 150k and the two 30k balloons. I'm looking at this as a long term investment and expect it to cash flow down the road when I can refinance the loan and get cheaper monthly payments. What are you guys expecting the commercial interest rates to be three years down the road? This part is also up to me as I do not want to go ahead a fix an interest rate percentage now for something that is going to happen 3 years from now.
Posted on 10/21/12 at 5:09 pm to stunna87
quote:
What are you guys expecting the commercial interest rates to be three years down the road
Much higher than they are now.... I think the smartest thing one can do right now is lock into long term cheap money via real estate investment....
Posted on 10/21/12 at 10:19 pm to stunna87
Those taxes look really low, like it hasn't been assessed in a while - the sale will change that. Find out what the taxes will be if its assessed at or near your sales price. Also, try to structure it so that you're locking in your interest rate now, even if you pay a little above market. A quarter point here isn't that big of a deal, but there are several somewhat likely scenarios where interest rates could be several points higher in 3 years and that could really blow up your rate of return.
Posted on 10/22/12 at 12:13 am to GrantTheFan
I would go ahead and include a salary for yourself as manager in your expenses. Say 40-50K. That way you can replace yourself if it becomes too much of a hassle. If I am understanding you correctly, this would bring net profits to around 150K a year. Sound about right?
Posted on 10/22/12 at 11:47 am to nogoodjr
I also own rental property. this all sounds reasonable. you are on the right track in that the major questions are occupancy levels and maintenance costs. you should be able to check around and find out the occupancy level in your area.
the concern I would have is you are buying a 32 years old property and not expecting to sell for 40-50 years. sounds irrational without a ton of maintenance. also, what is the probability someone would come in and build a new set of apts. in next 5-10 years and take all your renters since you will have a 40 year old property. I know this seller is your friend but get a lot of inspection work done on this property and hire a professional to make sure all aspects of property is up to code.
the concern I would have is you are buying a 32 years old property and not expecting to sell for 40-50 years. sounds irrational without a ton of maintenance. also, what is the probability someone would come in and build a new set of apts. in next 5-10 years and take all your renters since you will have a 40 year old property. I know this seller is your friend but get a lot of inspection work done on this property and hire a professional to make sure all aspects of property is up to code.
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