Buy Apartment Building in "Emerging Market" or Pass?

[Ryan Thomas]

So, long story short, we bought some single family homes in a market in central VA that was pretty undervalued (Lynchburg) and ended up with a few properties whose ROI is being wildly outpaced by the equity, so I'm considering 1031'ing one of them into a small apartment building in another adjacent state. The market there is definitely on the cooler side, but nothing about the trends I'm seeing concern me.

The area is lower income, but generally clean, lowish crime, etc. Lower income, lower property costs, lower rent, etc. but the numbers work out to about 16% ROI annually assuming 80% occupancy.

In theory, the numbers work, but I had some questions before diving into the deep end here:

1) Is the ROI on apartments generally better than single family? This would be an older building with newly renovated units; everything looks to be in order; no roof leaks, etc. I'm specifically wondering how much more I'd need to reserve for upkeep and maintenance costs relative to a single family home.

2) This particular building has been on the market for...a while (less than a year, more than 6 months). I know it takes longer to sell apartment buildings vs. single family homes, but how long is too long?

Any other pearls of wisdom you want to drop, feel free.