I'm a newb looking for some advice. I have come across a 12 unit property I believe I can get for under $150k in an older neighborhood, the building is also pretty old and in bad shape. I think i can get it back to a decent level of living for any potential clients for between $125k - $175. Let's just say I would be all in around $300k barring any major issues. It's 12 units! Rents in the area are $600 and up. From what I am seeing, this seems like a no brainer. There do not appear to be many investors in my area, else I would think this would already be snatched up just for the ARV alone.
What am I missing? Neighborhood is low crime, demographics for the area are mostly younger people with some college, many young couples in the neighborhood but not terribly close to schools. It is walking distance to restaurants and other entertainment. I am just leery of the deal that seems too good to be true. I know the rehab will take many months before I see the first tenant, still seems like a good deal though. I welcome your thoughts!
Real Estate is a numbers game with a sprinkling of vision. So 12 (units) * $600 * 12 (months) = ~86K. Assuming this is a through rehab, for the first few years, operations will be ~45% leaving an NOI of ~$47K. At a 10 CAP just for simplicity (once stabilized @ 90% occupancy), ARV is $470K; over 100K (25%) built in equity. If you can stabilized, sounds good.
One thing you did not mention were local occupancy rates. You need to confirm you assumptions (rents, occupancy rates, refine the rehab estimates, etc.).
Sounds like a very good project - good luck.
Thanks for that input, you have raised some good questions. With the limited tools I have available for checking occupancy in the area, it is low-ish. It is a rent heavy area, few homeowners as all the properties to be multi family. I am of the kind that if I can make it a great property, I can get clients. That is probably a naive thought on my part. I’ll have to dig deeper.
@Patrick Watson I agree with @Oren K. with this looking like a good deal on paper. I also invest in apartments on the lower "C" end and currently in the process of doing some value add now to force some apprecation to my 19 units. I would recommend to be very confident in your rehad budget and get as many contractor quotes as possible to get a good idea on price/rehab needed. I have learned invaluable information from the many contractors I have walked through my properties with to get a better understanding of what I'm dealing with. I've come across many suspect contractors, so just be mindful and check references, pull permits when needed and I would recommend paying them once the job is completed (or you can give them a draw as certain aspects of the rehab are completed). Best of luck and if you ever need help with any analysis, I've built a financial model that I help investors all the time look at smaller SFR's to the larger apartment deals. Let me know if I can be of any assitance!
Thanks Curtis, I appreciate it. I am struggles now with what deal to pursue for my first purposeful investment. I’ve found so many in the market that look great on paper, I have to do way more research before I am confident with anything. This tool you mention, can you send me a link to info about it? Thanks!
A 12 unit is not a good idea if it’s your first rental property. It will likely eat you up.
Could you elaborate please? I have no intentions of being a landlord. Financially I’m in a position where I don’t think it will “eat me up”. I’m a project manager with lots of experience in dealing with contractors and regulations. Any input is welcome, Im here to hear things I may not think of, not necessarily to be told “you’ll fail” with no additional information. Have you done a lot of C properties? Is that why you think it’s a bad idea?
Hi Patrick’s. Don’t be offended by Dick’scomment as I truly think he was trying to help. My first one was a triplex back in 1976. I think he meant it sounds like a lot for a first time investor.But then you explained your background and experience. If the numbers work and you were financially strong yourself, go for it!
I wasn’t offended at all, just trying to get more out of him. I’m like anninformaion leech, and I definitely take all advice to heart.
I'm also a new investor, buying a duplex in a C class area. I've been joining various social network community pages in the property's neighborhood to get a feel of what the resident concerns are so that I can renovate accordingly (to add value) and it's been helpful since I'm an out of state investor and I've been fortunate to have already started making friends with locals. I noticed the crime in that particular area is related to auto vandalism/theft, therefore I'm thinking perhaps running electricity to the detached garage to have an electric garage door and motion detector flood lights might add to the appeal as a renter for safety (I'm a woman and during college we had peeping toms and weirdo loitering around garages/parking.) I'm thinking perhaps even if it's a C class neighborhood, not only thinking of renovating the units is good to attract better tenants, but protecting possessions/creating extra storage space might be a benefit? I was reading that baby boomers are downsizing, wanting to live near activity centers, but extra space might be a problem, so maybe creating storage lockers and charging extra (or in addition to rent) might be an added value for C neighborhoods?
@Patrick Watson I just noticed that it's been 21 days since your last post...so did you go for it??! :-) Did you find financing, how did you finance it?
I did not go for it. Decided it was too much to bite off at this stage in my career. I need to cut my teeth on. Few smaller units first. Also I’ve leabred that Hagerstown isn’t the friendliest place to be a landlord due to a lot of rules protecting tenants. Someday I’ll get big units🤗
As they say sometimes... "discretion is the better part of valor"
I’ve also learned I make a lot of typos while texting. So many weaknesses to address!