These two 1920s buildings are listed for sale and I got the numbers from the agent. Since it is currently listed, I will change some details to protect the owner’s privacy. This is an 18 unit multifamily property. Built in 1927, it’s had some upkeep but more recently has had some deferred maintenance. It has 12 1 bed / 1 bath units and 6 2 bed / 1 bath units. There are wide common area stairways and original woodwork. There are wood floors which need to be refinished. As you can see from the photo, there are nice accents which aren’t found in today’s builds.
The heat comes from boilers and AC is window units. Tenants pay their own electricity. There’s been a lot of vacancy and the seller reports that annualized 2026 income is scheduled to be $129,861 while expenses are $122,951. Clearly, that’s a problem, but the agent helpfully gives some pro forma numbers. I say that ‘tongue-in-cheek’ because those numbers are always based on a rosy picture where all the rents are at market levels. That won’t happen until all repairs are completed and the vacancy is fixed. The asking price is $1,500,000. Should I buy it?
Underwriting
Of course, the answer is ‘maybe’. There is not enough information yet. To do this, we need to do underwriting, and I have written a whole series about this. In doing my research, I found that this is in a part of town with moderate crime, but 3 blocks away from a re-gentrified neighborhood. There is plenty to do in walking distance. There is not enough parking, but some spaces could be rented out. There is work to be done on the parking lot, though.
The Tour
I took a tour of the property. This is an essential step. There are always so many things that need work that agents don’t reveal on their photographs. There is storage space in the basement which could be rented to tenants. Unfortunately, I wasn’t able to see many of the apartment units because the property manager failed to give notice to the tenants. I was only able to see vacant units. The agent says these are the ones needing most repair. If every unit is the same level of repair-need, it would need about $200,000 in rehab to get to market rents. To make that happen, we either need to have 200k in cash or to get a construction loan. That will add an additional hurdle to the purchase. But, many of the units might be in better condition. What is the next step?
There are 2 options now: make an offer, get it under contract, and inspect every unit; or, go back and require that the owner gets you into some units. If I went that route, I’d randomly select 3 and tell them I want to go into those, so I know they aren’t just showing me the best ones. But, I’ve already taken hours to go and see the property. I don’t want to waste more hours going to a place we might not be able to come to an agreeable number on, so I’ll elect to make an offer.
The upside of making an offer, is that you can get a good price now and not have to waste any more time thinking about or traveling to the property. If they balk at your price that takes off 200k for repairs, you can explain that you were not allowed to see all the units and had to assume they were in the same unrepaired state. The downside is that the next time you go in to see it, you are paying an inspector $3,000 to get in there. If you find something you don’t like, you are out the money, and you have to terminate the contract.
The Decision
In the end, we try to make purchases as objective as possible, but there is always an element of ‘gut’ or subjectivity present. Do everything you can to limit subjectivity, but realize it is still there. I’m going to make an offer on this one. Let’s get in there and see the other units.
