My first Apartment Deal - Is this a good deal?

[CashCow]

New the forum, been on here for a month, learning alot from reading the forums, this place rocks, I appreciate all your input and knowledge on this board!

Please let me know what else I need to know, ask to make sure this is a good deal financially for me:

18 Unit Apartment:

List Price : $375,000

General Income: $79,968
Operating Expenses: $21,076 (Gas/Oil, Insurance, Mgmt, Water)
Total True Taxes: $15,000
Net Operating Income = $43,896

Seems as if there is pretty good cash flow

However list price seems, high, I was going to start with $325,000 as an offer

I appreciate any input you all can give me on if this is a good deal to start with and other questions I need to ask

Thanks!

[anthony91]

New the forum, been on here for a month, learning alot from reading the forums, this place rocks, I appreciate all your input and knowledge on this board!

Please let me know what else I need to know, ask to make sure this is a good deal financially for me:

18 Unit Apartment:

List Price : $375,000

General Income: $79,968
Operating Expenses: $21,076 (Gas/Oil, Insurance, Mgmt, Water)
Total True Taxes: $15,000
Net Operating Income = $43,896

Seems as if there is pretty good cash flow

However list price seems, high, I was going to start with $325,000 as an offer

I appreciate any input you all can give me on if this is a good deal to start with and other questions I need to ask

Thanks!

I think NOI is lower than that. try around 38k.

[CashCow]

I was just reading it directly as it was on the MLS report

How did you come up with your NOI number?

Thanks for your help!

Anyone else with thoughts on if this is a good deal or not?

[lassitermortgage]

Looks like a decent deal. With NOI of $43K assuming a DSCR of 1.2 and an interest rate of 8% the property supports debt of $406K.

[Iron Range]

The rents are very low for a unit that includes utilities.  Do you know what each unit rents for? Find out what the MARKET rents are and how many vacancies there are. Then you will know if you can start raising the rent as people move out, or fill the units with renters. I'll take a property like this on if I knew I could increase the rents or increase occupancy by advertising. 

If the rents are maxed out and the vacancies are minimal then you can find deals better then this without much effort.

[CashCow]

Thanks guys for the advice!

Iron-
Where else do you suggest to find deals similar or better?  I hear most of the best deals are not on the MLS when it comes to apartment complexes, any advice?

[Iron Range]

Some people will tell you that there is a magical data base full of half priced commercial properties that only a few Commerecial Realtors have.  NOT TRUE!!!  There is not a data base or website that houses such a list. 

You look on the MLS, Loopnet, go to REI Meetings, use Realtors, low ball, and get your name out there.  In the end the only way to get Mid-Lrg apartment buildings to cash flow is by rehabbing them.  You need to find apartment buildings that have either high vacancies, extremely low rents, or/and need to be rehabbed.  I have only come across a few apartment buildings that would cash flow as is, with no rehab needed.

Find properties that need to be rehabbed. It can be either management rehabbing (vacancies, low rents, etc) or property rehabbing (physical property needs repair). 

Do you know the answers in my last post???

[LIGHTBEING]

You look on the MLS, Loopnet, go to REI Meetings, use Realtors, low ball, and get your name out there.  In the end the only way to get Mid-Lrg apartment buildings to cash flow is by rehabbing them.  You need to find apartment buildings that have either high vacancies, extremely low rents, or/and need to be rehabbed.  I have only come across a few apartment buildings that would cash flow as is, with no rehab needed

Iron Range,

This is not true at all.  There are way too many variable involved to make a general statement like this.  Certainly, if you rehab or reposition a property you will have better NOI and COCR.  However there are markets that have reasonable 7-8 caps where you could easily cashflow. 

CF is really dependent on alot of factors.  How much are you leveraging?  What is the loan product/rate?  Can you cut expenses?  Can you increase operations?

CashCow,

Your best bet is to build a relationship with a quality brokerage firm.  You will be in a better position to see listings first and they may even show you some off market deals.  It's what they call pocket listings.
I work with 5 big firms that usually send me everything before it hits loopnet or MLS. 

[Iron Range]

Iron Range,

This is not true at all.  There are way too many variable involved to make a general statement like this. 

Variables meaning facts or what???  Mid-Lrg apartments do not typically cash flow unless there is something wrong.  There typically needs to be property rehabbing or management rehabbing needed in order to find a good enough deal worth purchasing. 

You will spend a long time looking for a cash flowing mid-lrg commercial apartment with no rehabbing needed and/or no management problems.

[LIGHTBEING]

Variable meaning, how much you are leveraging, what loan product, what market.  You can certainly cashflow on apartment buildings if you put more than say 20% down.   There are markets that currently list buildings at 8+ caps.  You can easily cashflow on an 8 cap. 

Like I said, you will certainly cashflow more if you reposition and/or rehab. 

Your statement may hold true in some markets.  Mine, for instance.  Apartments are generally sold around 5-6 caps.  You won't cashflow on something like this unless you put a significant down payment, which isn't an option for most.  You would definitely be better off repositioning and rehabbing in this area.  But some markets this strategy is not necessary to cashflow. 

[Iron Range]

Variable meaning, how much you are leveraging, what loan product, what market.  You can certainly cashflow on apartment buildings if you put more than say 20% down.   There are markets that currently list buildings at 8+ caps.  You can easily cashflow on an 8 cap. 

LIGHTBEING,

Whether you put 0%, 10%, or 50% down is COMPLETELY irrelevant.  I can make any property cash flow with enough down, that proves absolutely nothing.   Whey you are looking at properties. you ALWAYS cash flow a property at zero down. The money you put down is not free. 

[LIGHTBEING]

HUH? How much you leverage a property directly effects the cashflow.  Why would you evaluate a property with 0% dp? 

When I evaluate a property I typically figure out then NOI and cap rate.  Then determine what my COCR is based on how much I expect to leverage and at what anticipated rate. 

No wonder you are saying you can't cashflow on apartment buildings unless you rehab.  You are basing it on 0% down.  In other words, your formula is using 100% financing??

That is not the proper way to evaluate apartment bldgs.


The money you put down is not free. 

I never said it was......

[Iron Range]

Why would you evaluate a property with 0% dp? 

The money you put down is not free. 

I never said it was......

Good luck LIGHTBEING. I hope your successful.

[LIGHTBEING]

I'm not quite sure if that was sarcastic but I'm just gonna say, Thanks, you too 

Just to clarify to the readers.  In order to determine cashflow, or to draw up a cashflow statement you must include your debt service(leverage).  This will give you a better understanding of DSCR and your COCR, which is probably the most important factor(how much you are making on your money)

[Iron Range]

I would evaluate a property based on the purchase price, not the purchased price - down pmt. You find the Net Income then subtracted the purchase price's mortgage.  I would not subtract the Net Income by the actual mortgage.  To me that doesn't not represent a true property evaluation. The evaluation of the property is what we are trying to do here. 

If you pay cash for a property then how would you know if it is a good deal using your method? That's why I subtract the net income by the purchase price's mortgage.  This is the way I use to evaluate whether a property is a good deal. 

Cap rates and other ratios are used by those who don't understand what matters. What matters is whether or not the money the property produces is greater then the costs of the property.  Money In Vs. Money Out.