Real Estate Brokerage & Property Management Blog

Here you will find the latest real estate endeavor stuff I engage in on a daily basis.

Wednesday, January 27, 2010

Apartment Complex- Investment Analysis (10 Units)

Hi Prospects & Friends,

I discovered this property a few days ago as it came up in my search for investment perimeters for an apartment complex I'm looking to buy through a O/F Direct Concept. As of today it's only been on the market for 14 days, so this weekend I will drive by to see the true picture and attributes. Listed below are the investment stats for this property.

Listing Price- $590,000
Total Units- 10
Gross Sq.ft.- 6,240
Price/Sq.ft Last 6mths- $127
Location- Prime and A+
Taxes- $8,908/yr.
Insurance Proposed- $450/mth
Rental Rate Last 6mths- $1.16/sq.ft.
Layout- 10 units each (1Br/1Ba)
Average Unit Sq.ft.- 624
Economic Life- 40 years
Year Built- 1964

Current Landlord is renting 9 units @ $500/mth, & the other 1 unit is @ $425/mth. So the total rent is $4,925 as per the contract rents. After analyzing all this see my investment analysis below:

Current Rent Contracts - $4,925
Taxes- $742
Insurance- $450

($4,925-$742-$450=$3,733/7.34x1000)= $508,583

Market Rents- $7,238
Taxes- $742
Insurance- $450


So after analyzing the quick investment stats, and because the current seller/landlord said the property needs minor updates and that the rents are below market I would not pay more than $508,583 for this property. My investment stat range of $751,056-$823,705 says this is what this property is worth and would sell for based on similar stat properties in last 6 months. The median upward adjustment is $792,480. Conclusion is stated below:

1. My Buyer/Investment Hat- Says don't pay more than $508,583 for this 10 unit apartment complex

2. My Real Estate Broker Hat- Says I have a jewel because the recession has caused the current seller/landlord to list apartment complex for $94.55/sq.ft which is below what the true properties are really selling for which is $127/sq.ft. So I know based on my investment stat range I'm looking at least a resale between $751,056-$823,705 & factor in the median upward adjustment of $792,480 as the investment stat backup closure. Plus market rents are going for $1.16/sq.ft!

3. My Property Manager Hat- Says leave contract rents as is and when each tenant decides not to renew then rent @ market! "Caveat" don't ever run off a tenant by raising their rent to market when it's time to renew, because the whole idea of my don't pay more than $508,583 was based on contract rents and not market rents, so the investment numbers would fit into the current perimeters! Only raise contract rents to market when the tenants decide not to renew, and remember you have nothing too loose because you factored all the investment stats in the very beginning before the purchase. So once you do start to raise contract rents to market the additional income will be extra, and it will benefit you greatly with reserves for the apartment complex and even yourself!

4. My Seller/Interior Design Hat- Says since the economic life is 40 years and the property is already 46 years old I can conclude the plumbing and electrical are outdated as well as the quality construction of the apartment complex is too. So I know I would have to bring this stuff eventually up to date if required necessary. So not offering the seller $590,000 and offering below $508,583 would justify me to use the saved amount of $81,417 on all this if need too!

5. My Bookkeeper Hat- Says leverage the depreciation factor for the maxium of 33 years allowed as much as can. In my case I would fix up and then rent for about 5-10 years, then re-sale around the 7th or 10th year.

My point is I really like this 10 unit apartment complex, but if the seller can't accept less than $508,583 for this building then I will move on to the next real estate endeavor I find until someone agrees to what I want. So far I've bought 7 properties using my investment stats, so I know their are people out their who will honor what I want. The catch is I'm very ambitious/analytical and used that to my own advantage to gain the reasoning's to convince others to say yes to my real estate endeavors!


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