Deal or No Deal - 50 Units, Houston TX (Actual Deal Analysis)

Mike Ealy

Mar '23 (edited) • General discussion

Here are the details (and since this is a listed property, I've changed some of the details)

50 Units

Houston TX

Existing average rent: $700/mo

Market rent: $800/mo

Asking price: $3,900,000

Property is a "C" building in a "C" area of Houston

The apartments need $5,000 in renovation per unit

Step 1: Calculate the Proforma Net Operating Income

Market rent x No of Units x 12 mos

$800/mo/u x 50 units x 12 mos = $480,000/yr

x (1- operating expense ratio) = NOI

Given the property is a "C" property, use 50% as the operating expense ratio

NOI = $480,000/yr x (1- 50%) = $240,000/yr

Step 2: Calculate the Proforma Value of the Building

Based on market analysis, the cap rate in the area for similar properties is around 6.5%

Value = NOI/ cap rate

Value = $240,000/ 6.5% = $3,692,307

Step 3: Decide If the Deal is Worth It

Based on the above, this apartment building WILL BE WORTH $3.7M at the most BUT the seller is asking for $3.9M - $200,000 more than what this apartment building is going to be worth after WE DO THE WORK.

We will have to spend $250,000 in renovation PLUS take the time to increase the rent, put in our management and stabilize its operations.

Based on this, this is a NO DEAL.

What do you guys think?

Also, at what price will this property makes sense to you?

2 comments

Apartment Investing Secrets

skool.com/apartment-investing-4128

This group is all about sharing apartment investing secrets.