Investor · Toledo, OH · Member since 2016 · 15 posts · 1 vote
Hello All,
What are your thoughts about investing in small towns. I was informed of a 45 unit apartment deal in a town I am very familiar with. Its section 8 and based on the numbers I have its definitely cash flow positive . Great building, great price but my only concern is do I wager a huge debt on a small town even if its a cash cow day one?
Curtis Hummel Is the property managed by a 3rd party? If so, it’s always easier for me to buy-off on the numbers. If it’s self-managed it’s pretty easy to massage numbers. It doesn’t mean they did do that but it’s good to be aware of when looking at a T12. I think your biggest exposure is on the rehabish side. A lot of people run through units and think “oh, it’s just $1K-$3K per unit to freshen it up” but $3K * 45 units = real money!
My limited experience is the properties always go through some first year stabilization hiccups. So in your shoes I’d be less concerned about “massive debt” and more concerned about “heavy reserves” post-down payment. And, it’s a small thing, but don’t underestimate the costs of inspections and appraisals for 45 units...not...cheap.
Where there is great risk there should be great reward...................how experienced are you? How much reserve cash will you have to overcome maintenance and vacancy issues. Will you self manage or hire a company? How good is the cash flow compared to other possibilities with less risk? Is it a FSBO? Do your homework-get all the facts out, talk to some tenants-one of my favorite sources of info. Hang out in the parking lot. Make sure it is what you are prepared to deal with. Lots of ways to get screwed in this business, and lots of opportunities for home runs!
Curtis Hummel Is the property managed by a 3rd party? If so, it’s always easier for me to buy-off on the numbers. If it’s self-managed it’s pretty easy to massage numbers. It doesn’t mean they did do that but it’s good to be aware of when looking at a T12. I think your biggest exposure is on the rehabish side. A lot of people run through units and think “oh, it’s just $1K-$3K per unit to freshen it up” but $3K * 45 units = real money!
My limited experience is the properties always go through some first year stabilization hiccups. So in your shoes I’d be less concerned about “massive debt” and more concerned about “heavy reserves” post-down payment. And, it’s a small thing, but don’t underestimate the costs of inspections and appraisals for 45 units...not...cheap.
@Andrew Johnson "don't underestimate the costs of inspections and appraisals for 45 units" Any chance you can share some thoughts, estimates or rules of thumb? This is one area that I'm trying to get a better understanding of costs for my underwriting.
@Curtis Hummel . Congrats on finding this opportunity. What are the economic prospects of this small town? Who is the main employer? Is it a growing business? Are there any interesting economic projects going on in this town for the next 5-10 years? Are people moving in/out of the town? At what pace? I think there are things that should factor in your decision.
@Scott Skinger So here's how it worked for me, I'm under contract and the lender has to put the appraisal out to a blind bid. They send back bids for 20+ units that were maybe around $4K-$6K but some would do it in 2 weeks and some would do it in 4 weeks. Then the loan officer calls up the $4K guy and says "can you do me a favor and do it in 2 weeks". I can't remember exactly what I paid but it was basically that scenario. A lot of people just think it's the same thing as paying $400 for a standard residential appraisal when it really isn't. The trouble with a "one horse down" is that there might only be one or two appraisers in town that really do commercial appraisals. Odds are they get to set the price and timeframes. Trying to get an appraiser from the area to drive out to a property (based on data from a LONG time ago) for a "competitive price" is a miserable experience!
Thanks for the input guys the deal is solid all around and the numbers make sense, few vacancies, pretty much turnkey. Its actually in my home town so I know a lot about the property. Property management isn't an issue as well have a property manager in the family that has managed portfolios of 4000 units.
This is a small farming community (2000 people total). Its a dead stagnant market that has virtually stayed the same for the last 60 years. Can I bank on the fact that there will always be at least 40 people that need a cheap place to live for the next 30 years? I think so.