Deal or NO Deal? 34 Units in Florida · Apartment Investing Secrets

Deal or NO Deal? 34 Units in Florida

Two students of mine brought me this deal. Since it's the deal is still LIVE, I changed some of the details, including the photo and this property may or may not be in Florida :)

Market rent should be $2,496 (current rents are under market by $200/mo/u). The asking price is $8.5M. The cap rate in the area for comparable properties is 6.25%. The building is less than 20 years old. We estimate the operating expenses to be around 40% of the gross rents collected.

A lot of the units are renovated already but the owner is retiring and wants to cash out. There's still $120,000 in renovation left.

What do you think? Is this a DEAL or NO DEAL?

Step 1: Find the Proforma Value

1.1 Proforma NOI = $2496/mo/u x 34 units x 12 mos x (1-40% operating expense)

Proforma NOI =$611,021/yr

1.2 Proforma Value = $611,021 / 6.25% = $9,776,333 (let's round this down to $9.7M)

Step 2: Calculate the Returns from the Property

2.1 Profit from the resale = $9.7M less $8.5M less $0.12M capex

Profit from resale = $1.08M

2.2 Profit from the cashflow (we only count 4 years of proforma cashflow over a 5-yr hold, because we can't increase rents by $200/mo/u all at once & operations are still not stabilized)

Cashflow = NOI - debt service

Let's assume financing is 8% interest only.

Debt service = (Purchase + capex) x 75% LTC x 8%

= ($8.5M + $0.12M) x 75% x 8%

= $517,200

Cashflow = $611,021 - $517,200

= $93,821x 4

= Profit from Cashflow = $375,284

Step 3: Calculate the Returns

3.1 Cash on cash return = Annual cashflow/ Investment

= $93,821/ {($8.5M purchase + $0.12M capex) x 25% downpayment}

= $93,821/ $2,155,000= 4.35%