Are my fears about Apartments logical?

Are my fears about Apartments logical?

Investor · Rockwood, TN · Member since 2016 · 5 posts · 1 vote

Hello, I've recently only dealt with SFH's but, my main goal is to invest in apartments only. I'm getting ready to buy my first apartment deal. A 10 unit apartment that consist of two buildings. They both need some work and I'm looking to put about 60k into the rehab but, I'm only paying 130k for the apartments. Rents are $500 per unit in my area and that seems about right and even a little low for what other apartments are renting for. My concern is that I'm going to have a hard time finding tenants that I'll even want to rent to and I might have to settle for ones that are more headache than there worth, just to keep them occupied. My area isn't experiencing much growth but, has always been really easy to rent out a SFH. I really want to turn these apartments around and make them into something people will feel lucky to have the chance to live in them. Is this a logical concern or am I just getting cold feet because I'm jumping into the unknown? I just don't know if this is an apartment town or more of a SFH town.

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Real Estate Salesperson Licensed · Atlanta, GA · Member since 2016 · 114 posts · 22 votes
10y

Hey @Daniel Barnes, great question! I think your concerns are very logical and I would want to consider them as well. I'm a few hours south of you in Atlanta, but here in my market we have similar decisions to make. Properties with higher rates of return compared to the purchase price usually mean higher risk tenants. Thats not true for every market but it is here in my part of Atlanta from my experience.

If you decide to jump on the opportunity, which sounds like a great deal if the numbers are accurate (190k all in and 5k gross income before expenses I'm assuming) you will still cash flow very well. Be sure to put each potential tenant through a thorough screening process and background check. Ask for references AND verify and call each. Perform background checks and income verifications on each one. Avoid ones who have frequently relocated and be weary of those with past evictions. Lastly, make sure you stick to your personal criteria and try not to make exceptions. 

Good luck out there man!

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  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    10y

    @Daniel Barnes It's a legitimate concern, but may be superficial...I would need a lot more information to offer an informed response, but it sounds like you know enough about the general market to understand the potential upside on this building (i.e. if average units are $500/mo. and yours are fantastic, $575-600 may be the right rate). I would not be worried so much about the class of tenant as I would be about ROI. Just use solid screening and you will be ok...there are a million tenant screening services out there, so just pick a good one and make wise decisions on who you rent your units to ( I use Transunion My Smart Move). (just make sure you are well versed on fair housing!)

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  • Real Estate Salesperson Licensed · Atlanta, GA · Member since 2016 · 114 posts · 22 votes
    10y

    Hey @Daniel Barnes, great question! I think your concerns are very logical and I would want to consider them as well. I'm a few hours south of you in Atlanta, but here in my market we have similar decisions to make. Properties with higher rates of return compared to the purchase price usually mean higher risk tenants. Thats not true for every market but it is here in my part of Atlanta from my experience.

    If you decide to jump on the opportunity, which sounds like a great deal if the numbers are accurate (190k all in and 5k gross income before expenses I'm assuming) you will still cash flow very well. Be sure to put each potential tenant through a thorough screening process and background check. Ask for references AND verify and call each. Perform background checks and income verifications on each one. Avoid ones who have frequently relocated and be weary of those with past evictions. Lastly, make sure you stick to your personal criteria and try not to make exceptions. 

    Good luck out there man!

  • Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    If you get a bad tenant, it's your fault. Just own it. Finding tenants is the easy part, it's finding good tenants that is the challenge.  I would just focus on one apartment at a time. Rehab it, advertise it for rent and see what happens. If it rents quickly for $600, then repeat the process and ask more for the next one.  If it takes too long to rent out at $600, to a good prospect, then reduce your rent. By the time you get to apartment number 5, you will know exactly how much you can get for rent based on your rehab costs.  I am excited for you buddy. That is the kind of deal I would love to do very soon.

  • Investor · Rockwood, TN · Member since 2016 · 5 posts · 1 vote
    10y

    Thanks everyone for the great advice, it helps to ease my mind gets me excited about this big step I'm about to take. 

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