The asking price is $3.9 but we're one of a handful of buyers in the market and we can operate it cheaper than anyone else. Broker said he thinks he could make a deal happen at $3.2. I'll offer $2.85 but running safe numbers here at $3.1.
The current owner is paying $58k a year for a full time and part time manager on-site. We'd get a kiosk and software for $110 per month that can do the job better and hire a cleaning company on contract to clean units.
We'd be getting in below replacement cost at $55.36 per SF. You can't build new for that with land included even in a tertiary market. This is our moat. New competition is unlikely to show up and we may try to buy other nearby operators over time.
The asking rent of $11.24 per square foot per year is strong. Higher than asking rents in downtown Athens GA where I live now and they're building class A facilities for $100 / SF.
Lets talk about the tax advantages of RE. We only put $958k of our own cash in but we get to deduct $81k in depreciation every year for 39 years. That makes taxable income only 68% of real income. With 1031 exchanges you can push the recapture out indefinitely even if you sell!
And we didn't even get aggressive with accelerated depreciation which could get that number WAY higher in the early years to make at least 50% all cashflow TAX FREE. And if you do sell down the road and take a massive profit, only 15% of it is taxed. Thank you capital gains!
When its full (yr 4/5).. If we play it safe and estimate that expenses (+4.7% / yr) grow faster than revenue (+3% / yr) NOI still increases by 2.4% per year. This allows the facility to appreciate at $156k per year (if we value it at a 7.5 CAP).
If the market is strong we do a refinance at 36 mo. Target a value of 7.5 CAP on previous 12 month performance and pull $2.3MM in cash out (75% LTV). Thats 2.4X our original cash in 36 months later and now we own a property with no cash basis generating $300k a year in cashflow