Would you feel comfortable purchasing a newly built, 5 unit detached apartment complex while it is still under construction but just 4.5 weeks away from completion? All Lease agreements have been signed @ the high end of the local rental comps. Builder will guarantee rents for 12 months. Sells price projects a cap of 4.5% which will be lower than the mortgage interest rate.
What are your thoughts?
Take a look at the rents. How strong is the demand? Note- they purchased their lumber/materials before the cost 2x. How hard was it to get full? Are they asking top rents? 4.5% is at the low end BUT for new apartments, it may be the new norm. Cap rates are fluid with interest rates. Our ZIP rates will make cap rate compression a reality but it takes time. My old real estate books say never buy below a 12% cap rate. Well, that is easy- you just never buy:(.
As every builder will tell you this year that everything cost 20% more this year. I would feel comfortable telling you that it will NOT be cheaper to build next year. High costs are here to stay and not backing down. Only a major downturn in the market will stop the increase. With the huge housing demand on top of low-interest rates until 2023 expect more increases in the future.
Sorry to pitch my new best friend, but cryptocurrency does not have the same issue. Explore the option to invest in bitcoin/ethereum and just borrow against it. (Defi) (I am so sorry to muddy the waters but I would love all the hard-working, risk-taking, opportunity providing investors to be able to expand their ability to support a responsible capitalistic economy. Bitcoin and Ethereum can provide a non-fiat solution that will prevent our politician's misguided attempts of a solution. (Print more money- sorry daughter, granddaughter, and great-granddaughter)
No one will help you when the governor tells all the renters they do not need to pay rent- just means I have to work a little harder to make sure I can take up the slack. Nothing 70 hours a week can't solve. Work hard, treat people well and teach the same. Happy to be here and I am excited to see what the next challenge my team needs to solve is presented. If it were easy, everyone would get a trophy:) Wow- sorry I have to get off this soap box.. You are buying a hard asset, in 10 years your 4.5% cap rate will not matter, costs are not going down and people will still need a place to live. Even if Amazon came up with a instant house on Prime, SDC's, ground work, new fees, zoning and any new costs put on the developer would make it HIGHLY unlikely that rents will come down. Add the potential for accelerated inflation (my calculation 30% this year) you should be fine.
95% of the risk is already built-in since they will be complete. A GREAT property inspector would help you find EVERY issue that may be present in the new construction. Since you are paying a premium cap rate- have them correct and repair all items on a 3rd party punch list.
You will probably qualify for a cost segregation study make sure you factor this into the purchase price.
An engineer in bass study will get you the most tax savings if you have any questions here to help!!
Market location is very important. As @Chris Blackburn mentioned, look at comps to determine how strong demand is in the area.