I currently own 3 sfr that are cash flow positive. I want to break into multi family apartment buildings. There is a 14 unit for sale in my area that is a complete rehab. It is currently unoccupied. The current rent in the area is $400 to $500. I'm trying to figure out if it's a good deal and worth doing. Is the cap rate individual to each property or the overall geographic area? The sales price is 300k. Any and all comments are appreciated.
4-500 seems low for Arizona to rent an apartment .. you sure about that?
For comparison the average one or two bed apartment in my area is 450-550 and these can be bought all day at a rate around 12-15k per unit
But if you buy this You will have around 21.5k in each of those * plus what ever the rehab costs are which may run very high on a apartment complex with that many units. That may or may not be a good deal depending on the rehab costs taxes insurance etc . You need some solid numbers to really see what you got and you must setup a bigger pockets calculator analysis on here
I did a quick search on Craigslist to see what the rent in that area currently is.
I'm familiar with Erie, I lived there for about a year and a half. My wife is from there and her family still lives in Waterford.
@Ben Chapman Cap rate along won't tell you whether the deal is good enough to undertake. You need to do a more detailed analysis as to how many units are rented, vacant, which are paying/non-paying, what are the expenses, etc. In other words, you should ask the owner or the broker - whoever you're dealing with for T12 - it's an income statement detailing the property performance for the last 12 months. This information will serve as your input to perform a full property analysis. In addition, you need to include the renovations costs in your calculations. This would be your starting point in terms of figuring out whether it makes sense financially or not.
Thanks for the help. The property currently has no tenants and needs to be renovated. I'm not sure when the last time there was a tenant.
@Ben Chapman If you want to tag someone use "@" sign. Even though there are no tenants you have to underwrite the property to see whether it makes sense to buy. You cannot rely on pure gut feeling. There're some calculators on BP site under Tools to use.
@Ben Chapman It sounds like this one deserves some solid evaluation. Not only do you have the purchase price but you have the rehab costs. How bad are the units, do they have HVAC, electrical system status, plumbing, sewer lines, roof etc, etc?
The 2nd piece would be the operating costs, who pays water, electric, landscaping, management fees etc.
The 3rd piece would be the income side, your expected rent minus vacancy. Is the demand high enough to keep it pretty full in your area? (I don't know)
The 4th piece would be the money, do you have cash or will you use hard money? How much money goes out before you start bringing money back in?
It might be the greatest deal in the world, not trying to sour you on it just help you be real.
I hope it works out and makes you a millionaire many times over!!!!!
Hey Ben... @Doug McVinua nailed it. You need to figure in purchase price, rehab costs, and what your income and expenses will be after the project is over. If you've never completed a project in Phoenix like this before, perhaps you might be biting off more than you can chew. Renovating a SFR is one thing, but 12 units could be a monstrous project. Maybe try with something smaller like a fourplex first?
Just be sure to double and triple check your numbers before pulling the trigger, and be sure to run it by a few people on here with more experience than you first. That will help reduce your risk of making a major mistake by purchasing a money pit. Best of luck!
@Ben Chapman you might not be ready for large mfh yet.
After over 1000 strategy calls with investors and coaching clients over the past couple years here is what I tell W2 employees... For those who are able to save more than $30k a year or have substantial liquidity (over 200k), that’s the point where you move to the big stuff. It took me 11 sfh to make the jump and I had to sell my primary residence to get the liquidity.
Thanks for the help everyone. I drove by the property today, it's a total dump. It has a lot of potential, in fact it looked like a crew was just about finished with a similar property across the street. There's no way I would ever pay close to asking (300k)