The Tale of 2 Apartments: Forcing Values up By 4.2 mil
Hope this helps some new or intermediate real estate investors understand how to find apartment opportunities.
Just got back from looking at another 100 plus apartment unit to ad to my 1000 apartment in a year goal.
Here is a SNEAK PEAK of what my experience was like.
On this deal, I want to tell you the tale of two apartments, because on this deal, if you understand the dynamic of these two apartments, you understand how to create $4.2 million dollars in 2 years or less.
In the video, you will see footage of the first apartment, and the last few video clips are from the second apartment.
So the apartment I visited is what you call a VALUE AD.
That means, if you go in and ad some value, increase the rent, or decrease the expenses, you can increase the value and either refinance it, or sell it at the higher value.
Apartment 1: The owner is managing it for his family. He seems like he hates it. He admits he has many inefficiencies in his management. He rarely looks at the books. He has a passion for teaching and wants to focus on that instead.
His property manager admits to me that there are two drug dealers on the property and that she just doesn’t feel like kicking them out.
She also tells me they have pet fees, but she discourages any pets because its such a pain in the butt for her.
There is a now leasing banner, but you would never know because it is just hanging halfway off.
The pool has old mildewed furniture and is out of service.
The vacant unit smells like Cheech and Chong had a party there that morning.
You walk into the leasing office and it feels like a dungeon. Junk everywhere.
You walk into the units, and they also feel like a dungeon. There’s not even a light in the living area.
The grass is overgrown. The playground has missing swings. The roof needs to be replaced.
They are currently getting about $500 in rent for their 1 bedrooms. And when I ask them if they think they can get a rent bump by painting the interiors, renovating the kitchens, adding light, and just some general lipstick on a pig, they tell me they think the max they can get is $75 extra a month….maybe.
Most people would just walk after hearing all that.
And I would walk if it were not for the story on the second apartment across the street.
I walk across the street to the “other” apartment, same year built, same area demand, and the leasing office is well lit, much nicer, smells good, has a friendly face, a sign that says, “we love pets”, and the leasing agent immediately greets us and has info on pricing and availability of the units.
We tour the property and the grass is cut, it has a nice new paint job, new furniture out by the pool.
The units are simple but tastefully renovated.
But here is the kicker, they are getting $200 MORE per unit.
What does this mean?
With a little lipstick on a pig and professional management, and a new tenant mix, we can get $200 MORE PER UNIT on apartment 1.
Here’s the rough math.
$200 more per 105 units times 12 months means you can ad $252,000 profit to the complex. In that area, the properties are being traded at a 6 cap. $252,000 divided by 6 cap equals an increase in value of the property by $4,200,000.
And you might say, well how much do you have to spend to get it there?
Without going into too much detail, a premier interior apartment upgrade cost $10,000 a unit, and a basic reno costs $5000.
Would you spend $1,000,000 to make $4,200,000? ....I would…and the majority of that cost can be financed as well.
That’s just some rough math. But THAT is the EXACT situation we want.
The more opportunity to improve the value of the community, the more opportunity to force the value up of the apartment, refinance and pay back the investors.
