Multifamily in Richmond, CA

7 Replies

I'm a fairly new investor looking at multifamily in or near Richmond, CA.  

I find a number of properties like this one: https://www.redfin.com/CA/Richmond/4519-Taft-Ave-9...

It's listed at $783K.  Three units vacant.  That's $2500, $2000 and $1500 market rents.  = $6000.  With 25% down, mortgage is $2750.  

That seems to pass a sniff test for cashflow.  It's not that easy -- what am I missing?

@Kimber Lockhart Its not supposed to be that simple. For one, I am not sure what interest rate you are using, but you are way off on P+I. Your P+I (for 30 yr fixed) is going to be closer to $3,000-$3,100 for a 3-unit investment purchase. Then to that you need to add Taxes and Insurance. Finally you don't take the rent at face value. You need to see if it is real. All unit being vacant for they type of cash-flow, smells to me. Even if the rent is real, you need to discount it to account for expenses. That's when you get to your actual #s.

Hope this is helpful. Good luck.

You're right, I'm using a slightly out of date investment property rate, and was told I'd need to put 25% down.

I pulled rents from Rentometer, which is reasonably accurate for my other properties, but I will need to do actual local comps.  Rent seems to be moving quickly in the area -- any strategies for estimating?  I've found comping on Craigslist seems to run high as it shares only asking rents not rents for units that actually fill.

Assuming a 10% vacancy, taxes at current property tax rate + insurance it still leaves $1000 or so a month for other expenses and cashflow.

I've been watching that area too and those rents seem about right for units in good shape. Good luck!

Just in case you're curious, the property seems to be not actually for sale.  Numbers work well, but if you can't buy it, it doesn't exist.

Hello Kimber,

Welcome to the real estate investor world. Not the bash you, but the number seems too good to be true. The average rental in that area actually little bit lower than you expected, plus the turn over rate is higher as well due to tenants creditability. Base on your calculation, $6K x12 = $72K/YR, then minus 12K/Yr(Tax, Ins, Mx) = $60K/yr then divided $783K, looking at cap rate (NOI) 7.6% which is high compare to the bay area cap rate.

Usually high cap rate (8-12%) = high turn over tenants (Crappy tenants) lower appreciation.

Lower cap rate (3.5 - 4%) = Quality tenants and high appreciation.

Been an investor in/out of CA for the past 10 years, I will always pick bay area.

GOOD LUCK!

Kimber, list price is never what you need to use for calculation. Homes are selling over asking, by up to 25% in some areas. You should use market value of property not list price and assume that home will sell for over market price based on how things are appreciating in the neighborhood.

@Kimber Lockhart nice location. Its been on Redfin for a long time, so there might be some room to negotiate.  I personally don't like the architecture of that style of building.  They get hot in the summer and cold in the winter, but that is just a personal buying preference for me.  As I see it, the real issue with this building is that all of the appreciation has been squeezed out of it by the flipper.  Have you spent some serious time in Richmond to get a feel for the area?  If you have not, I HIGHLY suggest that you drive AND walk the different neighborhoods to get a good feel of different areas.  Personally, I will drive and walk on different days and at different times to get a really good understanding of an area.  Some areas in the East Bay look completely acceptable during the day, but at night it is a totally different vibe.  On the numbers side of things, that is just a matter of doing your math and finding your comfort zone to get to an offer price.


Good luck to you,

Arlen

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