6 unit in a small town

Multi-Family and Apartment Investing
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6 unit in a small town

Dustin Tyson
Boston, TX · Member since 2016 · 2 posts · 0 votes
I've found a 6 unit complex for sale off market in my town. It's only 50% occupied, and I believe it's because it hasn't been updated since its was built in the mid 80's. Also, the property is tucked away in a B- neighborhood with low visibility. Rough estimate of improvements I'm putting at 10-15k per door in order to raise rents to at least market, which is $500-550. Current rent is $425. But, the population here is around 5,600 and has had a slow decline. Basically we've lost about 600 people in the last 4 decades which isn't terrible, but definitely not good either. There are some good jobs around within 30-45 minutes, but I'm unsure of any new industry coming to this specific area anytime soon. The hub of our region is doing pretty well and is only 30 minutes down the road. Asking price is $205,000. This would be my first multifamily by the way. What would you do and why?
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Jason Chen
Tampa, FL · Member since 2017 · 240 posts · 153 votes
9y

This sounds like one of those deals where the price seems good and you're getting a lot of bang for your buck, but it's really not. People who get suckered into these deals may be able to extract cash flow in good cases, but that doesn't mean it's the best possible first move you could make into the multifamily RE investing world.

What I would do is basically tell myself that this place is worth about $10,000 per door, and that's it. At $35,000 a unit, this is the price of a C+ class property in slight disrepair in Ocala, FL, which has a growing population and has about 60,000 people and has much more favorable rent prices and living conditions. The fact that you are saying you are cool with spending $60-$75k into rehabbing the property leads me to believe that you may wish to pay a total purchase price of $160,000 or so, and then have another $70,000 into repairs/labor. That comes out to a total of $230,000.

How confident do you feel that you could, without a doubt, have a good supply of potential renters paying $525 a month to live there, and that you could sell off the property 2-3 years later for at least $275,000 minimum? With a declining population, this deal terrifies me unless you get it for a price so cheap that it doesn't even matter anymore.

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  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    9y

    How do you expect your town to fare in the face of the coming storm / damage?

    Are the empty units at least rentable, even if they're not the best? 

    Gonna be a lotta folks looking for shelter, even if only temporarily (month-to-month lease).

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  • Jason Chen
    Tampa, FL · Member since 2017 · 240 posts · 153 votes
    9y

    This sounds like one of those deals where the price seems good and you're getting a lot of bang for your buck, but it's really not. People who get suckered into these deals may be able to extract cash flow in good cases, but that doesn't mean it's the best possible first move you could make into the multifamily RE investing world.

    What I would do is basically tell myself that this place is worth about $10,000 per door, and that's it. At $35,000 a unit, this is the price of a C+ class property in slight disrepair in Ocala, FL, which has a growing population and has about 60,000 people and has much more favorable rent prices and living conditions. The fact that you are saying you are cool with spending $60-$75k into rehabbing the property leads me to believe that you may wish to pay a total purchase price of $160,000 or so, and then have another $70,000 into repairs/labor. That comes out to a total of $230,000.

    How confident do you feel that you could, without a doubt, have a good supply of potential renters paying $525 a month to live there, and that you could sell off the property 2-3 years later for at least $275,000 minimum? With a declining population, this deal terrifies me unless you get it for a price so cheap that it doesn't even matter anymore.

    1Reply
  • Dustin Tyson
    OP
    Boston, TX · Member since 2016 · 2 posts · 0 votes
    9y

    David,

    Good point with the storm! After Katrina in 05' people came into the area, so that's something to remember. 

    Jason,

    You've read my mind. What I do see is that the bigger complexes that are on major highways seem to have high occupancy. The biggest complex in the immediate area is being remodeled and rents raised. This one is sort of hidden and I never knew it was even there! Do think I can rent it? Yes, but only after upgrades and very good marketing. Selling down the road? That's my biggest concern and unknown. Probably can sell for profit, but it may be on the market a good while.

    What I know about the seller is they grew too quick and are now scaling back. I think they have 40-50 properties in similar condition or worse and just cant keep up with repairs. So I think its possible to get this at a lower cost. How much lower is the key. 

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  • Jason Chen
    Tampa, FL · Member since 2017 · 240 posts · 153 votes
    9y
    Originally posted by @Dustin Tyson:

    David,

    Good point with the storm! After Katrina in 05' people came into the area, so that's something to remember. 

    Jason,

    You've read my mind. What I do see is that the bigger complexes that are on major highways seem to have high occupancy. The biggest complex in the immediate area is being remodeled and rents raised. This one is sort of hidden and I never knew it was even there! Do think I can rent it? Yes, but only after upgrades and very good marketing. Selling down the road? That's my biggest concern and unknown. Probably can sell for profit, but it may be on the market a good while.

    What I know about the seller is they grew too quick and are now scaling back. I think they have 40-50 properties in similar condition or worse and just cant keep up with repairs. So I think its possible to get this at a lower cost. How much lower is the key. 

     Not only is that the key, but also remember that you need to search far and wide and possibly wait for a while for a good one to pop up. 

    Depending on where you live, deals like this should appear at least a couple times a week for you to analyze, and for every 50 of them you see, maybe 1-2 can be won in a small bidding war.

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  • Jason Chen
    Tampa, FL · Member since 2017 · 240 posts · 153 votes
    9y
    Originally posted by @Dustin Tyson:

    David,

    Good point with the storm! After Katrina in 05' people came into the area, so that's something to remember. 

    Jason,

    You've read my mind. What I do see is that the bigger complexes that are on major highways seem to have high occupancy. The biggest complex in the immediate area is being remodeled and rents raised. This one is sort of hidden and I never knew it was even there! Do think I can rent it? Yes, but only after upgrades and very good marketing. Selling down the road? That's my biggest concern and unknown. Probably can sell for profit, but it may be on the market a good while.

    What I know about the seller is they grew too quick and are now scaling back. I think they have 40-50 properties in similar condition or worse and just cant keep up with repairs. So I think its possible to get this at a lower cost. How much lower is the key. 

     You need a good exit plan with 100% of the deals you make, otherwise it's not worth it. The best exit plan is one where you can leave with a definite profit where the area appreciates a lot in value. Small appreciation in value is usually never worth it, and it's best to look in the hundreds of different markets available in the US.

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