When Apartments Are at a Premium...

Question

So I'm new to the site here but have really enjoyed reading everyones thoughts and willingness to share experiences and opinions.

I have been pondering this one for a bit now.  We are sitting on a pile of cash that we need to put into play that we want to put into multi-family units in Salt Lake City, UT.  I am 100% over the equity markets and we like multi-family more than single-family for a variety of reasons.  I moved out here full-time to get this ball rolling so now I need to get going.  My only concern is that prices here are at an all-time premium, between low vacancies, high rents and low cap rates.  I assume cap rates will be heading higher in the coming years, as they eventually have to with interest rates going, at least, a little bit up.  I am convinced on the market and we are buy and hold investors but still need a decent cash flow and ROI.

My question to you guys is, "Is it sometimes ok to buy high if you know you are buying in a good location and expect to hold onto the property for at least 10 years?"  If we can add some value to the property that would be a plus but I'm looking at a pretty slim inventory and priced accordingly.  I appreciate anyones feedback on this issue.

Thanks,

Matt

Account Closed · Answer

Matthew,

CAP rate doesn't mean much because the listing agent gets it wrong most of the time.  Can you throw some numbers so we can analyze them?

Like the 10-unit complex costs $1M, and each unit is currently rents for $1k, etc.  How young are these buildings?  The older the building, the more maintenance, etc.  Are you going to have someone manage the complex? What kind of return are you looking for?  Cash-on-cash, or CAP rate.  Are you going to finance it or pay all cash, etc.

Dennis Tierney · Answer

Maybe you need to rethink about the market in which you are investing. There certainly are areas of the country in which you can get decent properties that will cash flow at reasonable cap rates. I just got a 26 unit under LOI in the midwest for a 8.2% cap rate.

Joel Owens · Answer

Hey Matt,

I have heard caps are very low there.Everything has to do with investing for cash flow,appreciation,or both and what rate you will be willing to accept.

You need to define a pile of cash (how much).That will provide what size of deal and return you are going after.

Are your funds liquid (bank accounts),equity pull out (refi),or do you have to sell another property or properties,or have you sold already and are 1031 exchanging into another property??

Matthew Paul · Answer

Everyone thanks for your response.  Let me get some numbers for you in the morning on a few recent deals that just closed and one that i am looking at.  I really appreciate everyones advice and thoughts.  As I am trying to make some of these decisions alone, its nice to have other people to bounce around ideas and thoughts.

Brian Levredge · Answer

Like anything else, it depends. Someone I work with paid a record (for him, at the time) price of 90k per door for a 100+ unit about ten years ago.  It's now one of their best properties and cash flows about 40k per month.  If there are good long term job growth prospects, etc., for a particular region, then I don't see a problem with paying a higher price.

Ibrahim Hughes · Answer

I won't answer that last question because I'm biased.  I've been purchasing properties for at least 60 cents on the dollar for over 10 years so I really can't relate or answer fairly from the perspective of someone who may be new to this.

I will say that since you are sitting on a pile of cash and have all day to work on this why not learn to buy distressed properties that aren't listed?  Or even buy some that are?

If you are going to get in the game with everyone else then you are going to compete with everyone else which means the prices will rise amid low inventories.

Learn to find properties that no one (or very few people) knows are for sale. Foreclosures, probates, vacants and abandoned properties all come to mind.

All day, a pile of cash and Bigger Pockets? Don't insult us by buying retail. LOL

Kofi LeGrand-Sawyer · Answer

Matt,

Regarding 100+ units, right now inventory is low for below market multifamily deals. The REO properties are getting multiple offers. Most trades are happening close to current market value, which is still 15-30% below 2007-2008 values, so you're not going to see properties priced 15-30% below current market value.