Caps in Phoenix are low

[Derrick U.]

Caps in Phoenix are 5-6%. How on earth are you suppose to make money?!

[Ryan Dunigan]

Couldn't agree more with Brian/Greg.  Last month my partners and I closed on an age-restricted 30 unit apartment building in a decent part of Mesa, just outside of Phoenix.  The in-place cap rate was a 3.9% - that was because the rents were so far below market at roughly $546/mo (18 1BR units and 12 2BR units).  No real deferred maintenance - just wasn't updated over the years, the amenities weren't fully optimized, and was mis-managed from a revenue standpoint.  Once we finish adding washer/dryers, semi-enclosing the patios, and re-tenanting the property, the cap rate should be over a 9% and the average rent should shake out in the $895+ range with another $30 in RUBs for water/sewer (just signed the first two new leases yesterday, each for $1,030 all in!).  The plan is to refinance in 10-12 months and return at least 40% of investor capital and enjoy the high cash on cash returns for many years.  I hadn't done a deal like this in a few years, I thought we were overheated then...  There are still "deals" out there!