Investment will require mass eviction of seniors!
Hello to everyone,
I have an investment that I'm considering and would appreciate some feedback from someone who may have been in a similar spot.
Here are the details:
6plex, close to schools, transit and all the good stuff. Smaller town with high rents and very low vacancy.
The current multi family is owned by a housing foundation in a smaller town (40,000 people) that has been subsidizing rents for seniors. They will no longer will have this multi family subsidized and now must sell. They have a clause in the contract that will forbid any rent increases or evictions for one year. All of the people who currently live there are over 70 years old. If one where to buy, evict, reno and rent, it will be a fantastic deal with a cap rate at 11.37% and a cash on cash return at 22.49%. Of course those numbers are no brainers if it was a smooth transition, but im concerned with the optics. Holding for one year at its current status wont cash flow, but that is of little concern. Currently the unit is rather old (1970) and dated, so it will require a solid reno, which will "justify" the eviction. In B.C. you can evict if a reno is required, renoviction.
Here are the after reno numbers in CND dollars:
Aquisition costs:
- Purchase 460k
- Closing costs 9k
- Down payment 115k (25%)
- 3.1% rate on a 30 year Am (no other loan cost)
Monthly expenses:
- Management fee (use local handy man on hourly basis, handle rents and tennants on my own) $150/month
- Property tax $336/month
- Repairs and maintaince $435/month
- Insurance $120/month
- Reserve $300/month
Rent Roll:
- Rent 1k per unit, 6k/month
- Vacancy 5% ($300/month)
Reno cost:
- Renos 30k
ARV:
- 650k (conservative)
ROI:
- Cash flow $2,885.00
- CoC 22.49% (including reno costs)
- ROI 27.07%
- Cap rate 11.37%
Looking for input, thoughts or similar experiances. Of course the clause and then subsiquent eviction is my main concern.
Thanks to all who will provide their wisdom.
Jason