Topic: Multifamily deal analysis help

Hello everyone.

I have a 13 unit (8,000 sq. ft.) building under contract for $279,000 and am in the due diligence period. Wanted to get some feedback on the deal and numbers. I have other investment properties (4 units or less), but this is the first larger multi-family. Single story, brick building with a pitched roof built in the late 60s. Stable B to B- area.

Unit mix - 11 one bedrooms ($460 per month), 2 two bedrooms ($475 per month). Total gross rent of about $6,000 per month. Currently fully occupied. I think there is some upside in the rents (especially 2 bedroom units), but I am not counting that in my numbers.

Central laundry room with two sets of owned (not leased) coin op washers and dryers - estimating about $80 per month.

Tenants pay their own electricity (electric radiant ceiling heat and in-unit electric hot water tanks). Owner pays water, sewer, and common area electric (lights, washer, dryer, and electric water heater for laundry).

Annual Property taxes $8,600
Annual insurance $3,500
Management fee 7%
Annual Advertising $1,000
Water $240 per month ($2,880 per year)
Owner electricity $80 per month ($960 per year)
Lawn/Snow, etc. $1,550 per year
Legal $500 (rough estimate - many tenants are long-term and there have been no evictions in the past few years)
Maintenance $300 per unit per year (this is much higher than the current owner's financials)
Dumpster and trash removal $150 per month ($1,800 per year)
Reserves $250 per unit per year

With a 10% vacancy rate assumption, I come up with NOI of about $33,000, which would be just shy of a 12% cap rate.

Am I missing anything in these numbers? I would appreciate the feedback.

if applicable:

annual inspection fees (local and state)
accounting fees
bank account fees
communication cost (call service, pager, phone) particular to this property
tools and equipment needs special for this property (left on site or used for this site only)
annual organizational and filing fees (if held as a corp or pass through entity)
credit reports and background checks (new tenants)
unit turnover costs (estimated cost to do non-capital repairs/clean up for move in + capitalized costs, i.e, replace carpet, or other depreciable items)
(does your vacancy account for bad debt too?)


to account for tax implications of the transaction on an annual basis, add:

interest on debt
amortized points and tax fees
depreciation

Hope this helps. . . .

David,

Some thoughts:

* Lead Paint: If the property was built in the 1960's, would be worthwhile to have a lead paint inspection performed. (Asbestos seem less ilkely with electric heat. Mold, may want to include in physicial inspection.)
* Zoning and code violations - check with town health & building inspectors to see if there are any outstanding code violations or orders.
* ADA access questions. Not sure if you'll need to comply with any accessiblity requirements
* Some budget for electirty of vacant units, unlikelyu as it seems
* Any Utility deposits that might be required for placing service in new owner's name
* Real Estate Tax protest services if you thiinnk a proetest would be beneficial.

Hope you do fine with this deal.

My opinion only-

I'd review the lease agreements carefully carefully to make sure the tenants are real. Reconcile the security deposits and rent roll. You want to make sure the seller is not puffing. A sellers could offer last or first month free or waive the security deposit to get the building to 100% occupancy.

I have HVAC, plumbers and electrician contacts. Consider having such a professional review the property for issues.

Research to see if there have been any insurance claims on the building.

Get Income & Expense statements (last 3 years, preferable), copy of all leases and rent roll. Get bank deposit slips to verify actual rent collection. If you can get bank statements, you can also verify the expenses listed in sellers Income & Expense statements.

Best wishes.