Class C Apartment Complex
Hey guys need some advice,

Currently looking at a 1.5m Class C apartment (70 unit) complex with an NOI of 230k. Occupancy is 80%.

1. What are your thoughts on this investment, what should I particularly look for?

2. How to upgrade this into a higher class?

3. What are some suggestions I can do to increase margins/cut costs/ increase revenue?

4. What are some things I should keep in mind with class c?

Any other advice will be much appreciated.
[{"id": "fvwmjvx", "text": "Broker\u2019s perspective: \n\nClass C Multi-Family located where? (Not trying time steal insert myself just curious where your buying a 70 unit property for $21,400 per unit. You sure it\u2019s not $15M?) \n\nIf the NOI is $230k and the purchase is $1.5M then your buying a 15 cap property? That\u2019s insane and you should verify the rent roll, get the financials from a CPA (so you know the financials are clean), and buy that bad boy. \n\n1. What are your thoughts on this investment, what should I particularly look for?... Again, financials from the sellers CPA, rent roll and ensure the contract you use has a clause permitting tenant interviews and the usual) \n\n2. How to upgrade this into a higher class? \n\nHonestly, if your buying this at a 15 cap than I\u2019d not think about a reposition immediately, but rather take advantage of the fact you recover your capital that aggressively. Maybe consider a few years down the road when the property is paid off. Depends on market.\n\n3. What are some suggestions I can do to increase margins/cut costs/ increase revenue?.. \n\nThis has a lot of nuisances, but I\u2019d suggest calling other owners in the area to get an idea of what a correct expense ratio looks like. \n\n4. What are some things I should keep in mind with class c?\n\nTenant mix, age of building, and general MEP status on the property. \n\nA lot of your questions come back to market knowledge and really digging into the property. I was a property manager for 3 of the top multi-family owner operators in the country and worked with Acquisition teams on a contracted level prior to entering into brokerage. Did that for 8 years.", "replies": [{"id": "fvwok1f", "text": "&gt;If the NOI is $230k and the purchase is $1.5M then your buying a 15 cap property? That\u2019s insane and you should verify the rent roll, get the financials from a CPA (so you know the financials are clean), and buy that bad boy.\n\nI concur. Can also send the financials to a lender and see if they'll lend on it.", "replies": [{"id": "fvwrnoo", "text": "Yeah, hungry commercial mortgage brokers are happy to run proformas and size loans for prospective buyers/owners looking for financing.\n\nIt's a free second perspective that can help prompt important questions.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fvwnys5", "text": "what area is the building in?", "replies": [{"id": "fvwo50u", "text": "In a low income area, college area. Texas", "replies": [], "depth": 2}], "depth": 1}, {"id": "fvwom53", "text": "Nice building. If you don\u2019t decide to buy it yourself, would you be interested in wholesaling it? I have buyers for this!\n\nA 12-15cap is an awesome deal in multi family like that.", "replies": [{"id": "fvwot8h", "text": "No joke! I expect to pay $80k/unit in the Midwest on a 7-cap.", "replies": [{"id": "fvwramu", "text": "Have a few deals for you then.", "replies": [{"id": "fvwxodz", "text": "Hit me up if &gt; 70 units", "replies": [{"id": "fvx375x", "text": "Kansas City?", "replies": [{"id": "fvx38ui", "text": "Sure! If big enough to support on-site staff", "replies": [{"id": "fvx3hyg", "text": "Dm me your contact info.  I\u2019ll shoot a few deals your way.", "replies": [{"id": "fvx6svn", "text": "I have a 6 in indiana for 40k. Needs rehab.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "fvzeeno", "text": "Sure, send me a DM. I'm mostly in KCMO, but looking at Ohio and Indiana later this summer.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fvwp0ny", "text": "I highly recommend you find an appraiser who does multifamily and compare the expenses per unit to this building to see if they are doing anything shady to boost the NOI.", "replies": [], "depth": 1}, {"id": "fvwpb60", "text": "Wow, 21k/door is crazy!! \n\n1. Thoughts - look out for deferred maintenance, wear and tear, how the grounds are like, when was the building constructed, roof wear, electricals, HVAC. \n2. Honestly, if it's a C class w/80% occupancy, figure out how you can put affordable housing into it. You can get it leased up with a nonprofit and get guaranteed rent. For upmarket, repaint or restain any balconies/exteriors. \n3. See if they'll do RUBS (ratio utility billing systems) to reduce expenses. Renovate using quartz/granite countertops, it's cheap and looks really good and very durable. Invest in a lot more community amenities, like grill and pool and small dog park. \n4. Your tenant class will be a little rougher, so try to tenant proof it w/luxury vinyl plank, granite countertops, and stainless steel or black appliances.", "replies": [], "depth": 1}, {"id": "fvwpbys", "text": "The per unit basis and cap rate is insane. What are collections like? You mentioned it\u2019s in Texas, workforce housing has gotten slammed there due to oil fallout, the \u2018rona, and people skipping lease and moving back to their country of origin as jobs dried up and they weren\u2019t eligible for benefits. \n\nBiggest thing honestly is verifying rent roll, verifying collections (oh and by the way courts are super backlogged and if the current owner has GSE debt you can\u2019t evict right now anyways) and getting a good PCA done. I would think that at that basis unless you\u2019re buying like tin shack man camps in Odessa there is likely some sort of unresolved capex issue. If there isn\u2019t lever up clip coupons and don\u2019t put a dime into it beyond deferred maintenance and ride supplementals up.", "replies": [], "depth": 1}, {"id": "fvwqmtp", "text": "Call the local cops and get an incident report sheet on the complex.  See how bad it is.", "replies": [{"id": "fvxao1g", "text": "Agreed. Also, talk to your commercial lines broker. Most of the big liability carriers are walking away from Multifamily, especially Class C.  You may have trouble getting the coverage you need - at any premium. It\u2019s especially true now for assault liability, which will be worse if the crime stats in your zip are bad.  You may have to self insure for assault.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fvwvzl9", "text": "Theres no fucking way in the world this is an actual deal. These numbers are so fucked. I just penciled this out quick and none of this shit makes any sense. \n\nHow does anyone else not think this?\n\nSome of these responses are beyond me. Really? You're really buying a Class C 70 unit, with this kind of NOI, at 80% occupancy in this environment at a 15 cap for $1.5mm? Can no else do simple math? \n\nFirst off, to get this kind of NOI on a 70 unit Class C you'd probably have to be getting near oh, let's say probably close to somewhere in the ballpark of $700/month per unit in rent. So more than likely they're going to be 2 bed / 1 bath or 1 bed / 1 baths. So that could make sense. \n\nNow, at that rate in this renting environment there must be something wrong with the maintenance and management of the building. Is it starting to become functionally obsolescent? Poorly operated and managed? 80% occupancy is pretty damn low in 2020 so more than likely those two are both occuring. This was my like second red flag in this \"deal\" ... LOL\n\nAnyhow I'm done since this is a phony deal. Also, all these people saying \"ask for rent roll, send leases to CPA\" what the actual fuck do you mean? Jesus christ do you guys just read shitty articles on the interweb and think that's how it works? Jesus christ theres no hope. \n\nAsk for the full t12 than look over the rent roll and then everything else. Not sure what a CPA is going to tell you about that lol and not sure what just looking at the RR and leases are going to help analyze the numbers lol \n\nKids please stop posting if you don't know dick", "replies": [{"id": "fvx350m", "text": "Preach", "replies": [], "depth": 2}, {"id": "fvx3z1y", "text": "If I had gold to give you for this post, I would.", "replies": [], "depth": 2}, {"id": "fvx88ke", "text": "I think most people are acknowledging it doesn\u2019t make sense, but if somehow this guy found this crazy deal, more power to him. He\u2019s the one that has to make sure he\u2019s not jumping into a dumpster fire. \n\nBut yeah there\u2019s like 99% chance there\u2019s something bad here lol", "replies": [], "depth": 2}, {"id": "fvy7y43", "text": "Am I the only one thinking of deferred maintenance here? What if the complex needs $500K-$1MM in immediate upgrades? Parking lot, structural issues, etc... That 15 cap very quickly becomes a 7 cap at that scale.\n\nThis can absolutely be a real deal in a tertiary market. I agree the math seems fucky with rents, but your 2-bed solution solves that.\n\nAlso, seeing some comments that Class C multi doesn't trade for $20K/door. It absolutely can and does. I bought 600 units at $21K/door in 2018. Selling for $45K/door today after significant renovations/upgrades.", "replies": [{"id": "fvygn3y", "text": "You make good points but they're logically not possible.\n\nListen, I've been doing this a long time. Probably longer than most. I agree, you can buy units for $20k/door but they are going to be TIRED and they're going to be one beds. And if they are all one beds they need to be getting primo rent for them to be anywhere NEAR this guys NOI. And how is he getting that NOI with only 80% occupancy? I fucking called out deferred maintenance because of the vacancy rate didn't you read that? So since there are issues with the property hes probably only getting $400-475/unit in rent and that doesnt get you anywhere near that NOI..\n\nStill this deal does not pencil out or make any sense. Personally I dont think OP knows what a cap rate is and I think he is mistaking NOI to gross income. Maybe then it paints a different picture because at 20 a door for 70 units in shit condition I could see 1.5mm maybe making sense", "replies": [{"id": "fw0drzw", "text": "The reported numbers have to be wrong somewhere. Maybe the NOI like you said got fucked up somewhere along the line.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fw3gi7x", "text": "Amazing reply.\n\nMy other question which I don't see anyone else noting. Have you ever owned/operated real estate? These are real estate 101 questions. If you're going in a likely fake/complete disaster in terms of deferred maintenance/tenancy having never owned/operated something like this; then good luck. Oh and anyone who says well just get a property management company; they will deal with it! No, they will take advantage of you once they realize you know very little.", "replies": [], "depth": 2}, {"id": "fwfumep", "text": "This was classic! Made me laugh out loud.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fvx7vam", "text": "Commercial lender here, doesn\u2019t make sense like most people said. Cap rate is out of this world. Property should be worth at least 50% more under normal circumstances. You need to understand why the property is priced so low - maybe there\u2019s a weird story behind it that makes sense. But normally nobody would sell this for that cheap without some attached risk involved. \n\nIf all is actually normal, then you don\u2019t need to increase margins or cut costs. You have a property that already cash flows way above market.", "replies": [], "depth": 1}, {"id": "fvxaw3n", "text": "A 15 cap ?! That's outrageously good. What's up with deferred maintenance? There's a body buried somewhere at that price\n\nE: I'm a broker licensed in CA and AZ - also don't bother with the upgrade just buy and hold that 15boi", "replies": [], "depth": 1}, {"id": "fvxe0lh", "text": "Send me a DM. I run multifamily asset management operations for major multifamily operators throughout the US including some current class c+/b- stuff in Texas. \n\nI don\u2019t have anything to sell you, I\u2019d just be happy to talk through the prospective deal with you because, as most people have alluded to, it sounds like something is getting lost in translation or is not above board. \n\nMost deals are trading around a 5-6 cap these days (NOI divided by cap rate = purchase price). The terms you mentioned would be (favorably to you) way out of line if market norms and indicative that something is wrong.", "replies": [], "depth": 1}, {"id": "fvy5iuf", "text": "The cap rate is no where near being real. You can see that from the other comments as well. There\u2019s free market proprties in NYC at 6 caps right now in prime locations with historically the most appreciation. I\u2019m seeing a lot of landlords leave NYC for LOWER cap rates now for the first time in my 16 years in the business. 15 caps don\u2019t exist on good Multifamily", "replies": [], "depth": 1}, {"id": "fw1cfw8", "text": "now is not a good time to play with fire. Stay away.", "replies": [], "depth": 1}]