Investor · Albuquerque, NM · Member since 2016 · 10 posts · 2 votes
So this deal is as such:
545k, plus 19k to the wholesaler.
14 units of efficiencies, 2 units of two beds.
2015 gross was 101k, plus 4K from laundry coin machines.
NOI was 61k, landlord pays all utilities for the efficiencies, though they are separate metered for electricity.
Location c, class c.
Rents are slightly lower than market.
Efficiencies are charging average 550, two beds are at 575.
Just did the inspections yesterday, no major structural or roof issues, but definitely deferred maintenance in all units, bathtub are in horrible shape, tiles falling off the wall, carpets are nasty and the floors are very old. Fridge and stoves seem to be in working order.
Is this a good deal?
Need to put an offer in soon.
No room for price negotiation though.
Thanks
Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes
10y
@Huan Yang you might want to verify that there is a reputable property manager willing to take that on. I looked very seriously at a 24 unit complex in Waco that sounds very similar to yours, and I talked to at least 6 different property managers in Waco that said no, they wouldn't take it on, even though I have way worse stuff on the gulf coast and PMs lining up for my business there. Just a thought.
Investor · King of Prussia, PA · Member since 2014 · 1k+ posts · 339 votes
10y
@Huan Yang Did you verify the income based on actual? Such as last year tax returns? If the building cash flows positive and there's room for value add play and rents are under market and job growth is strong then it may prove beneficial.
Investor · Albuquerque, NM · Member since 2016 · 10 posts · 2 votes
10y
I was worried about the deferred maintenance will eat up all the profit. The seller has replaced the roof and painted the exterior. Nothing else has been done to the units for a long time. And it's out of state for us, not sure if we can handle it.
Investor · Austin, TX · Member since 2014 · 10 posts · 3 votes
10y
You should determine the cap rate, coc returns, timeframe for turning the units for repairs and increased rents.
Also, what's the physical vacancy rate and economic vacancy rate? You should get the rent rolls.
On its face, it appears to have potential. Would need more info to confirm.
How did you plan on financing the purchase? Most lenders will want a local property management company since you are out of state.
I would figure out how much in rehab you need to invest to get the property to market potential. Then compare purchase price + rehab vs. stabilized value. If there is enough margin then I would take on the project, if not I would find a more stabilized deal in Texas since you are out of state.
Investor · Albuquerque, NM · Member since 2016 · 10 posts · 2 votes
10y
Yes we are planning to hire a local management company for sure.
Most tenants we talked to during the inspections, were pretty happy with the units, they do have complains about the floors, bathrooms and the HVAC etc. most of them have been there for two plus years, only two units have tenants that's been there less than 6 months.
If we do acquire the building, the first thing we want to do it to pass on the electricity bills to the tenants, and raise rents on the 2 two bed rooms.
The electricity runs average $900 a month, and the two bed room units are paying the same rent as the efficiencies.
Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
10y
@Huan Yang My two cents, you don't sound ready to tackle something like this based on some of the questions. If you decide to move further, I would call some Waco property managers and discuss market, tenants, rent rates, location etc before you move any further.
I am not sure how far along you are in your evaluation but I have a few thoughts :
-Efficiency units are a pain in the A$$$$$- The worst 2 years of my life were owning a complex in Killeen. I am somewhat familiar with most areas of Waco and I cannot imagine that the turnover is as low as indicated
- Zero percent change the electric bill in the summertime for 14 units along with common areas is $900. My experience with all bills paid units as there is frost on the windows and doors are left open in order to cool the neighborhood as well :)
-Complexes with Efficiency units are often only successful with onsite management
Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes
10y
@Huan Yang you might want to verify that there is a reputable property manager willing to take that on. I looked very seriously at a 24 unit complex in Waco that sounds very similar to yours, and I talked to at least 6 different property managers in Waco that said no, they wouldn't take it on, even though I have way worse stuff on the gulf coast and PMs lining up for my business there. Just a thought.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
What are the CAP rate comps for what similar buildings nearby in the same asset class are selling for? Without that information and detailed due diligence to validate income and expenses, then there is no way to tell if you are overpaying or not.
Why Waco? Are there no real estate opportunities in Albuquerque? Nothing against Waco, other than the fact that you don't live there and the class c multifamily you're thinking about buying is.
Investor · Albuquerque, NM · Member since 2016 · 10 posts · 2 votes
10y
There aren't many multi families available in Waco. The only things I found on loopnet are the ones close to Baylor university, cap rates are between 5-6.
Albuquerque doesn't have much job growth, we have invested here for a few years, there is no appreciation. We don't want to buy local any more, unless there is a property with amazing cap rate.
Investor · San Jose, CA · Member since 2014 · 167 posts · 146 votes
10y
@Huan Yang
Like you said the management fee is very low. There is no Vacancy included in your numbers. You are not accounting for Vacancy and Capex. If you account for 8% or 10% vacancy and 5% capex and another 5% extra for management do the numbers still make sense to you?
Like a couple of people suggested above call Property Management companies locally and find if they will manage the property and if so ho much they charge and what is teh vacancy you can expect.
Investor · Albuquerque, NM · Member since 2016 · 10 posts · 2 votes
10y
If I deduct 5% vacancy, 5% capex and 5% management fee, the cap rate goes down to 7.8
There is a ghetto motel right across from the property, one of those weekly rentals with sketchy tenants walking around.
Maybe this property not so hot at the end.
If I deduct 5% vacancy, 5% capex and 5% management fee, the cap rate goes down to 7.8
There is a ghetto motel right across from the property, one of those weekly rentals with sketchy tenants walking around.
Maybe this property not so hot at the end.
Changing NOI does not change the cap rate, It changes the value.
There aren't many multi families available in Waco. The only things I found on loopnet are the ones close to Baylor university, cap rates are between 5-6.
Albuquerque doesn't have much job growth, we have invested here for a few years, there is no appreciation. We don't want to buy local any more, unless there is a property with amazing cap rate.
Doesn't make sense to me ... you say you want appreciation but are buying at $34k/unit or something like that and have someone local saying that sounds high for Waco. Are you expecting appreciation out of this property? If there is appreciation, then what was it selling for 20 years ago, $8k/unit?!? Or do you think that you as an outsider are going to walk into this market and nail the long term low where it will start appreciating rapidly the day after you buy? Or think that somehow the profits will be higher because the CAP rate is higher? As an experienced investor that has invested both in state and out of state (all be it in different states) I am just not understanding the logic, but perhaps there is something I'm missing. I'm not trying to be difficult or anything, but do believe that laying out your overall investment thesis for Waco and this property specifically vs. what you have readily available to you in your own backyard, and thinking and talking through the pros and cons of each will help you and us both.
Flipper/Rehabber · Chicago, IL · Member since 2012 · 45 posts · 24 votes
10y
Ghetto motel, I guess you mean that people in this community may be struggling with multiple life circumstances. My tenants are at the core of my investment strategy and even greater what is in the heart of the people in that neighborhood...in a sense, I am investing in the future of the community and my economic wealth. I am an emotional investor as well as one who uses the numbers to interact with my emotions. This building sounds like an idea property to work with a local 501 c three in order to do some form of transitional housing...a win win for the community, and a way to distinguish your company as altruistic and caring, which I also will assume. It can never be just about the money, because if that is all I care about, people will make sure that I get it, but also be cursing me behind my back.
If I deduct 5% vacancy, 5% capex and 5% management fee, the cap rate goes down to 7.8
There is a ghetto motel right across from the property, one of those weekly rentals with sketchy tenants walking around.
Maybe this property not so hot at the end.
Changing NOI does not change the cap rate, It changes the value.
Agreed, but it changes the implied cap rate in the asking price.
If I deduct 5% vacancy, 5% capex and 5% management fee, the cap rate goes down to 7.8
There is a ghetto motel right across from the property, one of those weekly rentals with sketchy tenants walking around.
Maybe this property not so hot at the end.
Changing NOI does not change the cap rate, It changes the value.
Agreed, but it changes the implied cap rate in the asking price.
"Implied"? That's for fools and idiots. Cap rates are CREATED by closed sales.
If I deduct 5% vacancy, 5% capex and 5% management fee, the cap rate goes down to 7.8
There is a ghetto motel right across from the property, one of those weekly rentals with sketchy tenants walking around.
Maybe this property not so hot at the end.
Changing NOI does not change the cap rate, It changes the value.
Agreed, but it changes the implied cap rate in the asking price.
"Implied"? That's for fools and idiots. Cap rates are CREATED by closed sales.
You might want to look in the mirror. It's common around here to say a property is priced at x.x cap rate. Doesn't mean anyone saying that is foolish or idiot enough to pay that, but it's the easiest way to compare asking prices for MF properties.
If I deduct 5% vacancy, 5% capex and 5% management fee, the cap rate goes down to 7.8
There is a ghetto motel right across from the property, one of those weekly rentals with sketchy tenants walking around.
Maybe this property not so hot at the end.
Changing NOI does not change the cap rate, It changes the value.
Agreed, but it changes the implied cap rate in the asking price.
"Implied"? That's for fools and idiots. Cap rates are CREATED by closed sales.
You might want to look in the mirror. It's common around here to say a property is priced at x.x cap rate. Doesn't mean anyone saying that is foolish or idiot enough to pay that, but it's the easiest way to compare asking prices for MF properties.
WHY ON EARTH, would a real estate investor want to compare ASKING PRICES? That person is a FOOL.