Investor · Champaign, IL · Member since 2011 · 94 posts · 27 votes
I know this has been discussed before sometime back. I'm Curious to what other are running into.
I keep looking at apartment building for sale, run the numbers, earthier I'm doing something wrong or sellers is way off.
Example;
11 units asking 550k,
Ran the numbers, did scenarios of different amounts of down payments to see when there was a cash on cash return of at least 10%.Had to get to 50% of property value down before that happened, realistically I think the true value is around 340K. With a 100k down she has cash on cash return of just over 10%.
This is just one of many I have looked at; I’m assuming the trend is to over price and hope that an international or institutional invest comes along?
I do 100% of my apartment business in mid- Michigan. Two bedroom units are going for $30k a door. I have purchased a 20 unit and a 17 unit in the last three months. There are plenty of owners that have "had it up to here!" with their tenants (tenants that THEY chose oddly enough...) so there will always be motivated sellers.
I would also have to agree. It looks like a lot of the multi-families that are listed for sale in my area (Oakley, Hyde Park, Mt. Lookout) are priced for owner-occupied investors. I blame that HGTV show "Income Property." LOL
That is something I had not considered. I never thought about having to compete with people who are not concerned with whether the property cash flows. As a seller, it's a win-win. They get top dollar for a property that an investor wouldn't touch because it will not cash flow at the list price. The buyer, who is not an investor, sees it as a way to get a place in an expensive neighborhood that they normally would not be able to afford since the rental income will cover a decent chunk of the mortgage.
Of course, the mortgage payment will be lower, but only while the other units are occupied, also there is no mention of expenses, repairs, utilities, taxes, insurance, etc on that show. Since I actually went the owner occupant route on my 4 plex, I know that the costs outside of the mortgage payment itself add up to hundreds of dollars per month. So when that non-investor thinks they are going to get away with a payment of $500 per month, in truth it may be closer to $1000 month. That show has undoubtedly created issues.
I have been looking at multi family units for the past 1/2 year or so, and the prices have just been mostly out of my league in my targeted counties/zip codes.
I have now ventured out of those counties and I'm starting to see things more affordable, but the markets there are not very strong, which make me hesitant to pull the trigger.
I recently found 20 units (1970s) selling for around 700k. Rents average about $550 in a class C neighborhood. Occupancy rate is around 90%. Properties have new roofs (about 2 years) and new HAVC units for 50% of the units.
The multi family commercial loans are currently cheaper that the fannie mae standard loans by a point+. Some of the portfolio lenders are running promotions like no closing costs. I believe this is adding to the market action.
I am seeing a good number of quads (multi-quads) in the net $25k-$50k a door in Jacksonville. Some are in need of work and some are move in ready. They vary by neighborhood and age. Rents ranging from $500-$750. Putting them between 1% and 2% a month.
So I'm seeing in this community some kind of 1 to 2% rule. My guess is that it's some kind of SWAG formula that someone in the community has come up with. Can someone help describe what this is?
@Henri Meli You definitely want to know what the economic conditions are for the area before you purchase a multifamily asset. You want to know if there are new jobs coming in and no layoffs scheduled. The jobs need to come from companies that bring money from out of the market so the money flows into the market. You can find the information about jobs at the local chamber of commerce and they will be glad to help you.
You also need to know what the trends in the demographics for the submarket are doing. Is the population growing or shrinking? Will new jobs bring more population? Is the median household income in that submarket strong enough to support rent increases? What is the vacancy and absorption look like over the last 12 months?
Some of the local information you need to know is if the property complies with current zoning and if the all the utilities are separated. In the 70's it was typical to have only one water tap due the fees associated with separating it per unit. What are the property taxes and how does the local government assess the property when it sells? How much is the insurance cost per door?
Your best source for all this all of this data is to build a relationship with the local multifamily expert in that market, preferably a CCIM or CCIM Candidate. If you want to go it alone then you will need to contact the local zoning commission, tax assessors office and chamber of commerce. You can get the local demographics from the Bureau of Labor Statistics and US Census websites.
I do 100% of my apartment business in mid- Michigan. Two bedroom units are going for $30k a door. I have purchased a 20 unit and a 17 unit in the last three months. There are plenty of owners that have "had it up to here!" with their tenants (tenants that THEY chose oddly enough...) so there will always be motivated sellers.
@Douglass What cities are you investing In in Mid Michigan?
Sorry so long to get back with you Thomas. Lansing and Holt are the two cities where all my buildings are located...so far.