Shelbyville, IN · Member since 2016 · 47 posts · 24 votes
A newbie here, wondering how much I would expect to-or in the case of finding a investor, would expect to realistically spend on a multi-family apartment complex? These things do not come cheap, especially in the cities where the market is piping hot. My strategy would be to buy and hold. According to Zillow, my home states capital of Denver, came up as #1 on the housing market. The first example is in Denver, second in Richmond, VA (another hot market)
4295 Hooker Street (seriously)
Asking Price: $595,000
Cap Rate: 6%
Units: 4
3806 Chamberlayne Avenue
Asking Price: $430,000
Cap Rate: 9.37%
Units: 8
While I don't fully comprehend the idea of cap rate yet, I would be willing to guess the higher it is, the better it is. The property in Richmond is nicer than the one in Denver, yet is more expensive.
Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
10y
Originally posted by @Account Closed:
To determine how much you want to pay for the investment take the annual rent total and divide by the Cap rate you desire. Example, if the yearly rents total 18,000 and you desire a 10% cap you would pay 180,000 for the property. Some use NOI instead of gross rents. It's just and indicator so use the same to compare your prospects.
Hope that helps!
NO - sorry to be disagreeable, but that is flat out wrong and potentially dangerous misinformation. When you value a MF property, you're paying for NOI, not rent. Rent should never be used in isolation to value a property! Also, cap rates are dictated by the market, not your desire. ;) What if you have 2 C class properties, both w/ same rents? One is ABP (higher utility expense), one not, but they otherwise have similar P&L's. By your logic, you'd pay the same for each, whereas in reality the non-ABP one is worth a good bit more.
Investor · Ontario, NY · Member since 2015 · 17 posts · 3 votes
10y
To determine how much you want to pay for the investment take the annual rent total and divide by the Cap rate you desire. Example, if the yearly rents total 18,000 and you desire a 10% cap you would pay 180,000 for the property. Some use NOI instead of gross rents. It's just and indicator so use the same to compare your prospects.
Investor · Florence, SC · Member since 2013 · 7 posts · 2 votes
10y
I still use the 50/50 rule to ck for cash flow. Once I get rent roll and operation cost, I run a more in depth Analysis. It also depend on condition of units and age. I have some I have paid 25k a door and some at 55k a door.
Flipper/Rehabber · York, UK · Member since 2013 · 895 posts · 453 votes
10y
Rather than ask what you could pay - since you already know that figure will range dramatically based on location and quality - look at your ROI. Cap rates are what a lot of people use, I personally find them to be a little subjective since a "good" cap rate in one city is a terrible cap rate in another. And cap rates don't account for cash flow & debt service which is usually more important to the newer investor. @Ben Leybovich has some great education pieces and calculators for analyzing multi-family.
Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
10y
42nd and Hooker is a very hot neighborhood, both for renters and homebuyers. According to the MLS they are pulling in 4,256/mo in rent, and the rents are pretty reasonable for the area. Yes there are places where you can buy at 20k a door, but Denver is not one of them, LOL (and the 20k units aren't the kind of places that rent for 1000+ a month.)
That place is certainly not a cash flow monster, but might be a good option for a 'house hacker' who really wanted to live in that neighborhood
I'd strongly suggest not starting with a fourplex as far away as Virginia, as someone starting out. Just the cost of getting out there to check up on it (and you will definitely have to do that) will eat up a big chunk of your profit.
Real Estate Agent · Midlothian, VA · Member since 2014 · 10 posts · 1 vote
10y
Ditto what Adam said. I know the property that you are talking about and it is appealing for an 8 unit at that price but you will be dealing with section 8 housing there for sure. So, yes, that would be a pretty risky investment which is probably why it's been sitting on the market for that long. I think you could probably negotiate that price quite a bit. Let me know if you need a realtor. I'm sure I can dig one up....hint, hint. No, really, I'd be happy to help you in any way I can..
Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
10y
Originally posted by @Account Closed:
To determine how much you want to pay for the investment take the annual rent total and divide by the Cap rate you desire. Example, if the yearly rents total 18,000 and you desire a 10% cap you would pay 180,000 for the property. Some use NOI instead of gross rents. It's just and indicator so use the same to compare your prospects.
Hope that helps!
NO - sorry to be disagreeable, but that is flat out wrong and potentially dangerous misinformation. When you value a MF property, you're paying for NOI, not rent. Rent should never be used in isolation to value a property! Also, cap rates are dictated by the market, not your desire. ;) What if you have 2 C class properties, both w/ same rents? One is ABP (higher utility expense), one not, but they otherwise have similar P&L's. By your logic, you'd pay the same for each, whereas in reality the non-ABP one is worth a good bit more.
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
10y
You can realistically spend $20,000/door or $120,000/door. What makes this game hard is that both of the above can be good deals, and both can be bad. Until you figure out how this can be, I'd sat - buy nothing :)
You can realistically spend $20,000/door or $120,000/door. What makes this game hard is that both of the above can be good deals, and both can be bad. Until you figure out how this can be, I'd sat - buy nothing :)
Maybe you ca help me figure that out, by breaking that down. How can a property that has $20,000 going per unit,, be as good as $120,000 per unit (by door, I am guessing you mean the unit).
Flipper/Rehabber · York, UK · Member since 2013 · 895 posts · 453 votes
10y
This is why Ben made the point of knowing how to figure that out. For a very simplistic start: $20k/door in the Midwest where each unit rents for $550 versus $120k/door in Denver where each unit rents for $1500. You're going to see a different return on your cash invested. Actual analysis is far more involved and there may be factors like upkeep costs, turnover, potential appreciation, etc that would even the score or widen the divide. I recommend downloading his multi-family analysis course and spreadsheet to start learning what numbers you need to know.
You can realistically spend $20,000/door or $120,000/door. What makes this game hard is that both of the above can be good deals, and both can be bad. Until you figure out how this can be, I'd sat - buy nothing :)
Maybe you ca help me figure that out, by breaking that down. How can a property that has $20,000 going per unit,, be as good as $120,000 per unit (by door, I am guessing you mean the unit).
Well - say paying $120,000/door will net you a 15% return, while paying $20,000/door will net a 3% return, which would you rather? :)
You can realistically spend $20,000/door or $120,000/door. What makes this game hard is that both of the above can be good deals, and both can be bad. Until you figure out how this can be, I'd sat - buy nothing :)
Maybe you ca help me figure that out, by breaking that down. How can a property that has $20,000 going per unit,, be as good as $120,000 per unit (by door, I am guessing you mean the unit).
Well - say paying $120,000/door will net you a 15% return, while paying $20,000/door will net a 3% return, which would you rather? :)
Obviously, I would try to reel in the bigger return fish, over the smaller fish. Let's take this property for example. It is a property I found on Loopnet in Arvada, Colorado. The average price for properties in that area, according to Zillow, is $318,000. The properties overall price is $610,000, with the price per unit being $122,000 (for 5 units) with a cap rate of 6.72%. The NOI for the property is $40,966. Its 5415 Carr Street.
Here is the listing if anyone wants to take a quick peek. From a first glance, even though the shades are closed, the property doesn't look all that bad on the outside. It looks like, at least on the outside, it has been well maintained. When it comes down to financing, I most likely at this point, would go with a broker. I've seen some properties around the price range of this property, and they have looked more worn down.
Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
10y
Cap rate depends on a lot of things. Is the property in question class A, B or C? What kinds of tenants are you going to attract?
Cap rate of 6 sounds pretty bad at that price point. Even in Chicago in the best neighborhoods with just a $300k investment you get a 7% cap rate at a minimum. That isn't the best return, but vacancy is low and these areas attract high income tenants.
Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
10y
@Derik S. Just so you know, 5415 Carr St has been under contract since last November. Loop net, zillow, etc are lead generation companies that sell your info to the highest bidder.
If you are looking for smaller multifamily, recolorado.com is your best bet. It won't have all the smaller MF though. The commercial arena doesn't have anything as reliable for free.
Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
10y
@Derik S. there is a lot of missing information. What are the rents? Is the CAP rate proforma or actual? How are utilities paid?
Up/down units would be hard to rent. There is no parking and no private yards. What about laundry? Are there washers and dryers in the units? I would guess there would be no onsite laundry. There is very stiff competition from adjacent new complexes around old town.
I second the advise to get an agent. If you have the funds to take this down, there are better deals out there. Most brokers never even list the good ones they just go to the buyers they are already working with. In this market you can't afford to not take advantage of that opportunity.