The last property I saw that had those numbers was next to a crack house, 2 of 4 units were empty, and 1 unit was under eviction. It's a 0% rents to purchase price if you can't actually collect the rent.
Or high expenses? I've seen properties with common boilers providing heat and other utilities to all units and the expenses are huge. The comparison needs to be on the NOI.
The last property I saw that had those numbers was next to a crack house, 2 of 4 units were empty, and 1 unit was under eviction. It's a 0% rents to purchase price if you can't actually collect the rent.
Or high expenses? I've seen properties with common boilers providing heat and other utilities to all units and the expenses are huge. The comparison needs to be on the NOI.
Glen is right. Often times it appears to be 2-3% but fixed expenses are not factored in such as water, trash, sewer, etc. Also, looking over vacancies and delinquencies will help you vet the 3% property.
@David Smith - You have described a property with a 24 CAP. I've never seen one. A small MF with Op Ex 1/3 of rents including management? Normally its about 1/2. If it is indeed such a great cash flower, why do you want to try to add value in a poor town with little/no appreciation? I think the posters above all make good points.
Are the property taxes high? Lots of turnover? Maybe just a good deal??
My 8-plex brings in 2.2% of purchase price but I had to raise rents. They had just taken the building off of Section 8 and nobody was paying the rent difference, so I got a sweet deal on it. He just wanted to get rid of it, instead of trying to get the tenants to pay the rent. The value almost doubled in my first year because I got the rents up to market and completed some deferred maintenance. I got lucky!
@David Smith as you can see from the many comments there really is no answer. Price or price to rent ratio is only 1 factor in the overall value as an investment.
Is this genuinely a great price? Or has the market perceived this as high risk property and hence drive the price down? How doe this compare to other rentals in the area both in price and condition?
There’s been a lot of good answers on this thread. It Sounds like a unicorn but depends on how you found it, if it was listed I would be very skeptical. If this is someone you sought out or a lead from your network it’s absolutely possible people sell for a wide variety of reasons. I would really want to know why they are selling the place. Check local police reports/tax history etc on the property. Are you familiar with the area? Have a solid plan to manage it? Are rents actually being collected?
I bought a C property duplex (I think it's more of a B- as it's on the edge of the nicer part of town) that doesn't net me 3% but it's close (2.75%). I own larger properties but none are that high monthly rent VS purchase price.
I bought it from a guy who lived out of state and his PM was worthless. I put about 3K into the property (almost 2K in electrical upgrades and the rest was materials and handyman cost - I did a lot of work myself but the handyman did the work I would have botched).
It's definitely possible to get 3% on a property that isn't in a warzone, especially with a large MF property (just not in most markets). You'll have to do your homework on this one to make certain it's not a money pit.