Spokane Apartments: The proposal

Things have been moving along on the Apartment Complex in Spokane, and I have been out there a couple of times, and am heading back over there in the next day or two go get contractor bids, but in the meantime I present to you the package I put together on the property:

 

Executive Summary

The Spokane Apartment Complex is a 36 unit building Centrally located in Spokane.

Contracted Sales Price: $410,000

Current Rents: $325

Local Average Rental Price: $450

Current Occupancy: 20%

Local Area Occupancy Rate: 97%

Prevalent Spokane Cap Rate: 6.5%

New Roof Installed in 2012

On-Site Laundry Facility

Newly Installed Security Fence Around Property

Proforma Summary

Projected Based on My Vegas Experience
Annualized: Annualized:
GSI $194,400.00 GSI $194,400.00
Vacancy $9,720.00 Vacancy $9,720.00
GOI $184,680.00 GOI $184,680.00
Maint $23,085.00 12.50% Maint $44,160.00 23.91%
Management $23,085.00 12.50% Management $23,085.00 12.50%
Account/Legal $2,160.00 1.17% Account/Legal $2,160.00 1.17%
Evictions $1,500.00 0.81% Evictions $1,500.00 0.81%
Advert $900.00 0.49% Advert $900.00 0.49%
Insurance $1,500.00 0.81% Insurance $1,500.00 0.81%
Utilities $2,400.00 1.30% Utilities $4,800.00 2.60%
Trash $6,000.00 3.25% Trash $6,000.00 3.25%
CapEx $23,085.00 12.50% CapEx $32,005.04 17.33%
Taxes $6,762.67 1.42% Taxes $6,762.67 3.66%
Total Exp $90,477.67 45.33% Total Exp $122,872.71 66.53%
NOI $94,202.33 NOI $61,807.29
Mortgage $30,660.61 Mortgage $30,660.61
Free Cash Flow $63,541.72 Free Cash Flow $31,146.68
DSCR 3.07 DSCR 2.02

We have experience managing properties in C class neighborhoods with tenants that require a greater level of oversight and management. This positions us to manage the Spokane Apartment complex, more effectively than the current owner/managers.

The proforma calculations present a very rosy picture of that the property could cause an investor to overpay for the property and run into a more difficult operating situation than investors who are experienced in running low-income properties.

There are 2 areas where we can immediately increase Operating Income:

  1. Increase the Use of the Laundry Facilities and adding additional Coin-Operated devices
  2. Remove the Old Boiler and turning the basement into Rent-able Storage Units

Rehab Costs and Estimates

Flooring 7100 $5.75 $40,825.00 $1,134.03 $38,083.33
Interior Painting 7100 $1.75 $12,425.00 $345.14
Boiler Remvoal $25,000.00 $694.44
Wall Removal 36 $1,000.00 $36,000.00 $1,000.00
Kitchens
Range 36 $399.00 $14,364.00 $1,915.00 $22,980.00
Range Hoods 36 $43.00 $1,548.00
Refrigerator 36 $499.00 $17,964.00
Cabinets $0.00
Undersink 36 $134.00 $4,824.00
Base Left 36 $121.00 $4,356.00
Base Right 36 $121.00 $4,356.00
Upper Left 36 $113.00 $4,068.00
Upper Center 36 $113.00 $4,068.00
Upper Right 36 $113.00 $4,068.00
Counter Top
Sink 36 $82.00 $2,952.00
Faucet 36 $37.00 $1,332.00
Counter Top 36 $140.00 $5,040.00
Bathrooms
Vanity W/ Sink 36 $98.00 $3,528.00 $333.00 $3,996.00
Faucet 36 $27.00 $972.00
Plumbing Kit $0.00
Accessory Kits 36 $30.00 $1,080.00
Medicine Cabinet 36 $30.00 $1,080.00
Toilets 36 $98.00 $3,528.00
Mirror 36 $20.00 $720.00
Shower Rod 36 $14.00 $504.00
Shower Head 36 $16.00 $576.00
Misc
$0.00 $400.75 $4,809.00
Exterior Doors 36 $99.00 $3,564.00
Interior Doors 36 $37.00 $1,332.00
Outlets 360 $0.96 $345.60
Switches 180 $1.03 $185.40
Vinyl Windows 36 $250.00 $9,000.00
Estimated $209,605.00 $5,822.36 $69,868.33
Budget Over Run 40.00% $293,447.00 $8,151.31 $97,815.67

Exit Strategies

Classic Buy & Hold Strategy – 5 Year Horizon

Price $410,000.00 $190,000.00
Rehab $350,000.00
Year 1 Year 2 Year 3 Year 4 Year 5
GSI $73,440.00 $187,272.00 $191,017.44 $194,837.79 $198,734.54
Laundry/Coin Op ($20/mn/unit) $2,160.00 $8,640.00 $8,812.80 $8,989.06 $9,168.84
Storage ($20/Un, 12 Un) $720.00 $2,880.00 $2,937.60 $2,996.35 $3,056.28
Pet Fees/Misc Fees $2,700.00 $2,754.00 $2,809.08 $2,865.26
Vacancy (10%)   $18,727.20 $19,101.74 $19,483.78 $19,873.45
GOI $76,320.00 $182,764.80 $186,420.10 $190,148.50 $193,951.47
Maint $3,816.00 $21,931.78 $22,370.41 $22,817.82 $23,274.18
Move Out Costs $0.00 $5,400.00 $5,508.00 $5,618.16 $5,730.52
Landscaping/Snow $0.00 $1,600.00 $1,632.00 $1,664.64 $1,697.93
Management (6%) $4,579.20 $11,236.32 $11,461.05 $11,690.27 $11,924.07
Lease Up Fee 36/un/yr $15,300.00 $15,300.00 $15,606.00 $15,918.12 $16,236.48
Rent Credit for On-Site $1,275.00 $5,100.00 $5,202.00 $5,306.04 $5,412.16
Account/Legal $2,160.00 $2,203.20 $2,247.26 $2,292.21 $2,338.05
Evictions $0.00 $3,900.00 $3,978.00 $4,057.56 $4,138.71
Advert $1,800.00 $1,836.00 $1,872.72 $1,910.17 $1,948.38
Insurance $5,500.00 $5,610.00 $5,722.20 $5,836.64 $5,953.38
Security $1,440.00 $1,468.80 $1,498.18 $1,528.14 $1,558.70
Utilities $4,800.00 $4,896.00 $4,993.92 $5,093.80 $5,195.67
Trash $4,589.40 $4,681.19 $4,774.81 $4,870.31 $4,967.71
CapEx Reserves $7,632.00 $18,276.48 $18,642.01 $19,014.85 $19,395.15
Taxes $5,822.00 $5,938.44 $6,057.21 $6,178.35 $6,301.92
Total Exp $58,713.60 $109,378.20 $111,565.77 $113,797.08 $116,073.03
NOI $20,486.40 $84,906.60 $86,604.73 $88,336.82 $90,103.56
HML Costs $68,400.00
Mortgage $0.00 $38,836.77 $38,836.77 $38,836.77 $38,836.77
$0.00 $0.00 $0.00 $0.00
Free Cash Flow -$45,753.60 $54,709.83 $56,580.76 $58,489.11 $60,435.63
DSCR #DIV/0! 2.19 2.23 2.27 2.32
Loan Interest Term
$570,000.00 5.5 30
$3,236.40 Year 1 Year 2 Year 3 Year 4 Year 5
Projected Cash Flow $45,754 $54,710 $56,581 $58,489 $60,436
ROI -20.14% 12.59% 46.31% 81.04% 116.79%
COC -24.08% 28.79% 29.78% 30.78% 31.81%
Value @ 5 Cap $409,728 $1,698,132 $1,732,095 $1,766,736 $1,802,071
Value @ 6.5 Cap $315,175 $1,306,255 $1,332,380 $1,359,028 $1,386,209
Value @ 10 Cap $204,864 $849,066 $866,047 $883,368 $901,036
ROI on Sale -134.12% 420.24% 438.91% 457.88% 477.15%

ASSUMPTIONS:

  • 6 month rehab during the first 12 month year, with lease up running the next six months.
  • HUD limits for Spokane County Section 8 limit efficiency apartment payments to $467/month. Our above calculations are based off of a rental payment of $425/month.
  • The Maintenance line item is set to 12% of GOI
  • A Turn-over Cost $300/unit for half the units every year
  • Landscaping/Snow removal for pressure washing the sidewalk and small right of way around the building.
  • Management costs are set at 12%, current rates for management in Spokane are 6%, but we have added the additional 6% for lease-up costs, management oversight costs, and other management fees. A rent credit for an on-site manager is included, as a just in case cost.
  • An Accountant/Legal line item for bookkeeping, CPA costs, and miscellaneous legal items.
  • Trash Costs: A 2 Yard Recycle Pick up Once a Week: $45.49/mo
  • Trash Costs: A 1 Yard Dumpster Picked up 2x a Week: $336.96/mo
  • Advertising Costs include Website and other annual advertising packets to be distributed to S.H.A. Also included for Apartments magazines.
  • Security Line Item for video system on the exterior part of the building and internal monitoring for fire alarms.
  • CapEx account is set to 10% of GOI
  • Spokane Taxes total: 14.2372
    • Chapter 84.14 RCW authorizes the City to create a multiple family housing property tax exemption program and to certify qualified property owners for that property tax exemption. The City Council enacted Ordinance No. C-32575, which provides for the property tax exemption program for multiple housing in residential targeted areas. Pursuant to Ordinance No. C-33079, the City Council expanded the residential targeted areas. Which could reduce the tax bill to $0.

Leave a Reply