Phoenix, AZ Multi-Unit (6) - Is this a good deal?

Question

I've been wanting to get into Multi-Unit properties and this one presented itself.  I don't know the Phoenix Market, but from what I've researched it is landlord friendly. Here is the info,

Price = $840k (6 units)

**Gross Cap = 9%** *$75600 gross income* potential Brand NEW apartments!! 6 units in total. Completion is approx. 2 weeks away with 50% of the building preleased already!! All units 2 bed, 1 bath, White Quartz counters, stainless appliances, in unit laundry, hard wood floors and metal accent walls make this a unique space to call home. All units electric individually metered with all other utilities being sub-net split between residences makes for higher returns. Very efficient units with LED lighting throughout make energy bills very low!! All conveniently located in walking distance to Downtown Phx, coffee shops, restaurants and light rail.

Looking for input about this deal. Is it reasonably priced? What other things should I consider?

Jen Hoang · Answer

Thank you for all your input. Lots to consider!

@Ryan MooreI did do google the address. You're right! It would stand out like a sore thumb in that area. Love this technology. Saved me a trip.

@Wes Blackwell Thanks for bringing up opportunity cost. Lots of helpful info:)

Ryan Moore · Answer

While I don't know the market in downtown area, it's not exactly in a great area.  This new build kind of sticks out like a sore thumb compared to the homes around it.  Google the address and see the area surrounding it (google still has it as a vacant lot).  Also they seem very happy that with 2 weeks to go until completion and they have 50% of the building pre-leased... maybe that is a good thing, but that really is only 3 units, I read that as they couldn't get another 3 tenants to rent in that area for that price point.

The 9 cap rating is a joke since there isn't anything listed for expenses accept insurance (which seems low) and taxes (will taxes go up now that it's not a vacant lot? I'm not sure how that works).  Seems too pricey, especially for that area.

Brian Garrett · Answer

Assuming around 50% expenses and $840k PP you're at a 4.5 cap.

I don't know your market at all but that doesn't sound like a great deal.

It sounds like a brand new A class building so expenses should be lower though.

You would need to get all of the actual numbers to really analyze it properly.

Bob Okenwa · Answer

@Jen Pothilat

Without knowing the exact location, it would be hard to give a fully accurate analysis of this property, but the asking price seems a bit high for 6 units. You can compare this property to what other properties in the area are going for on Loopnet.com. For units such as these, you need to get a rough sense of rents, property taxes, and management fees before even thinking of moving forward.

There are many submarkets in and around downtown where you can see rents for a 2 bed 1 bath go for as little as 700 a month or as high as 1500 or so a month. Run the comps through rentometer.com or look at Zillow rental listings to get an idea of what the actual rents for the area are.

Wes Blackwell · Answer

@Jen Pothilat

Determining whether or not a property is a "good deal" is extremely subjective, because the definition of a good deal is going to differ from one person to the next.

First and foremost, I would ask yourself what you're hoping to accomplish with this property purchase. Is there a certain metric or ROI you're hoping to achieve? If so, can this property help you achieve that? That's #1.

Secondly, we can't really analyze the deal fully without knowing all the numbers. Are there comps? Is this what the property is actually worth? What's your financing look like? Will you be managing the property yourself? Etc. All those figures are going to change the way someone looks at the deal.

Lastly, what is the opportunity cost? What other opportunities would you be missing out on by committing your funds to this project instead? Would those other properties better help you reach your ROI / investment goal? If so, then you may want to consider those other properties instead.

Ultimately, it all comes down to money in vs. money out. And if these property looks like it's going to be able to get you the return you want, then I'd say it's worth it. It's brand new, so no real capex or maintenance for awhile. It's nice, so you should be able to attract quality tenants and get maximum rents. And the location seems good for Downtown Phoenix.

If you need someone to pull MLS data for you (like the listing) or other comps, etc. just let us know and we can help you get more information that may help you make a better decision.