Investor · Seattle, WA · Member since 2016 · 51 posts · 13 votes
8y
Hi Casey,
I'm wondering if you know the market, or if you are taking the broker's word for the "market rents?" Even if the current rents are below market, what is the strategy/business plan for bringing them up to market? If you've budgeted $200k for rehab, then over what period of time will that be occurring? A realistic projection might be to bring all 22 units up to market rent with rehab over a 2-3 year period, unless you're dealing with a building that's only 50% occupied currently - in which case it shouldn't be 2.4M. Lastly I see you projecting a cap rate at resale or refi of 5% but the broker lists the market cap rate of 7.3%. If anything, you should project a higher cap rate at the time of refi (probably in 3 yrs, rather than 1) given the rising interest rates. Hope that helps!
Real Estate Broker · Tacoma, WA · Member since 2016 · 545 posts · 252 votes
8y
I absolutely second idea of factoring for rising interest rates into your CAP that you are expecting to sell or Refinance at, that is something we have been working with a number of clients on here. I cannot speak to the rehab because I am not in construction, but the question to me is why wouldn't the current owner invest the 200k to bring the property to market rents if its going to bring in $61,000/year in additional income? My guess is that it is going to cost substantially more and around here construction costs are outrageous. Many guys in my office develop and redevelop property and it is out of control at this point.
My office is thirty minutes from Sumner, I am happy to be a resource in any way I can.
I think I would rehab the units as they become vacant, so your 2-3 year time frame is likely correct.
I'm not 100% familiar with the market. I took a combination of the brokers proforma, rentometer and what i saw available on rental sites. $1,200 didn't seem too out of ballpark.
At 95% occupancy
Your analysis on cap rates is very helpful. I'll have to dive deeper on that.
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
8y
Casey, I have looked at most of the 10-20 unit MF opportunities in that area and Tacoma, Rainier and many more. If, as you say it needs most of your 200k budget in siding, it will need a lot more money that you may not have budgeted for. You should have a close look yourself or take advantage of folks that are offering local help. Most of the MF opportunities that existed in the area 2 and 3 years ago have been picked over like crazy and whatever exists today will need quite a bit of close examination, this climate is very unfriendly to any outdoor building products, especially wood.
Congratulations on finding a 22 unit MF in this area! Just make sure it is going to result in a profitable venture and err on the conservative side.