Multifamily Acquisition Analysis

@flipped_out

Equity 141·Posted 2w ago

I've reviewed the numbers on this small apartment acquisition, and here's my take. The cap rate they paid is around 6.5%, which isn't bad considering the in-place rnets are about 20% below market. However, to achieve the projected pro-forma rents, they'll need to invest in some serious renovations. I'm talking new appliances, updated flooring, and a complete overhaul of the building's exterior. The value-add plan is ambitious, but if executed correctly, it could yield some impressive returns. The buyers are estimating a 30% increase in revenue through rent bumps and reduced vacancies. Still, I remain skeptical – we've all seen these types of projections before, only to have them fall short. I'd love to see a more detailed breakdown of their expenses and a contingency plan for any potential setbacks. The location is decent, with some new developments popping up in the area, but it's not exactly a hotspot. Overall, it's a solid buy, but I'm not convinced it's a home run just yet. Let's revisit this deal in 12-18 months and see how ther value-add plan plays out.

2 comments

@txrei_pro·2w ago

I agree that the cap rate of 6.5% is reasonable given the potential for rent growth, but I'd like to see a more detailed breakdown of the projected expenses, particularly the expense ratio. A 30% increase in revenue is aggressive, and I'm concerned that the loan may be sized too aggressively to the cap rate, leaving little room for error. What's the estimated debt service covreage ratio on this deal? Additionally, what's the plan for managing the renovation process to minimize disruption to existing tenants and ensure that the projected rent bumps are achievable? A 20% increase in rents may be realistic, but 30% seems overly optimistic without a significant improvement in amenities or services. Let's also consider the potential impact of new developments in the area on the local rental market - could this increased supply put downward pressure on rents and undermine the value-add plan?

@brrr_beth·2w ago

I'd like to see the appraisal assumption behind this deal, as 6.5% cap rate seems aggressive. How much capital actually came out after closing cotss and rehab reserves?

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