10 unit apartment deal- opinions, please!

5 Replies

Hey all,

I hate to ask something so specific to me, but I would love some opinions!

I currently own a condo rental and a boarding house in Washington state, and have been in RE for a couple of years, though only investing for a year. I have been looking for a large multi family or small apartment complex, and I found one I really like in Grays Harbor County, WA. My big, giant, red flag concern is that there is virtually no job growth in this area. The economy is primarily based on fishing and forestry, which I don't really consider to be sustainable sources of employment in the long-term. However, everything else about this property lines up very well, and I want to pull the trigger or move on asap, since I've already analyzed it forwards and backwards.

Here are the details:

625k PP

current monthly income $5,600, annual income after expenses (utilities, taxes, maintenance, repairs) is 46k, which would cash flow after debt service, but not a ton.

However. The rents are legitimately 25% under market. No joke. They had a move out on a 1 bedroom unit (all rented for $525) and rented it for 1 day for $700. There are very few rentals in this area... they have been at 100% occupancy for the last several years. 

There are several other ways to make this property cash flow that are not utilized right now. We could get an extra $1k monthly without blinking, and there are 3 other ways to add solid income on the property after the 1k (boat storage is super desirable, coin op laundry as tenants drive 15 minutes out of town for laundry currently, small RV park or storage). This is also a bit of a destination, as it is right on the WA coastline, so Airbnb has potential.

All in all, I'm confident that I can increase my net to 92k annually, and after expenses and debt service (partial commercial, partial seller carry), this puts me at ~$2,500 a month cash flow. 

Am I digging myself into a hole with such a limited economy/job growth area?! I really like this and love the potential- but am I getting emotionally invested? Ahh! Pls help. Thank you :)

Damn Briana shhhhh! That area can only handle so many investors! Pretty much everything you said reflects my experience in that wasteland! No economic growth and no rental housing. I have a 12 unit building; one bedrooms go in a day for 700, 2 bedrooms go for 775, also in a day or two. People are fighting for rentals I find. Is it risky? Sure. So don’t be unprepared and only buy the very best you can. Stay away from the bad areas-haha-and screen your tenants extra well. I am told local PM quality is a problem; but we decided to self manage so no personal experience there. All the best Briana and keep us posted!

Briana, unless you can get more per door, I would not do it. If you are certain that this is a value add deal where you can get the 92K you speak of, then I would do the deal. LIke you said, this is not an appreciation play, so it will need to have upside and/or be under market rent. 

Thank you both!! 

It's definitely value-add.. I also would not purchase it if it weren't :) 

Bjorn, thanks for the insight and experience. Glad to know of someone having a good experience in this area. Everything I know tells me to stay away from such a economy-less area (hah), but the other stuff seems like it makes up for it. The PM may worry me a bit... It would be very hard for me to self-manage if things went awry, but there is always risk, I suppose....

Hi Briana,

I am based out of Olympia and have looked extensively in Grays Harbor, but I cannot pull the trigger. Primarily due to location (more than 30 minutes from my house and poor property management in the area) and slow economic growth. I would probably not consider a deal in Grays Harbor unless it would perform close to the 2% rule (probably at least 1.5%). I think you could get a better purchase price if the property has been on market for a bit, as the purchase price seems high for how the asset is currently performing. The seller should consider how the asset is currently performing, rather than solely focusing on the pro-forma. also be careful of flood zones and be aware that if you are buying in Hoquiam, landlord are charged water from the city directly and you have to absorb or bill back tenants, which can be a pain.   Just my two cents! 

Thanks, Jake!

Definitely agree with the PP... I think they are a bit ambitious listing it that high. I really want about 525k but that would likely be a stretch, especially since I'm hoping the seller will carry some. It's not in Hoquiam, but that's good to know too :) the management definitely concerns me. There are a few local companies that seem to have decent reviews, but you never know... and I don't want to have to make the trip out every month or something to check in. Perhaps I'll lowball them a bit (banks won't even finance less than a 1.25 DSCR, and I think with current operation it's about 1.2) and see what happens.