Alaskan/Wash Investor

[Jim Green]

Hi everyone, I'm Jim, currently living in Juneau, AK. I have had a few small rental properties in Alaska and can do simple repairs and painting. I'm thinking of buying long term apartment buildings to set myself up with a retirement income. I am interested in the Washington/Oregon area as I have relatives there and would live part time in the area. I've seen a brick wall apartment building with 8 -2 bed units that I like, it was built in the 60s. I wanted to quiz the members about a few things: If there is no insulation and the tenants pay for electric heat, is it worthwhile to include insulation costs for attic and floor in the initial loan? If they already have market rents, how else can I increase value? I'm thinking of more landscaping but that requires maintenance. Currently it is lawn and big trees and attractive, but pretty plain between the units. Last is how to get the finances to pencil out? I'm looking at a 25% DP and 5% fixed for a 15 year commercial loan. It seems crazy that residential loans are 3.25 for the same product and residents don't even have a rental stream. So the NOI barely covers the loan at 5%, but the other properties I looked at had even worse numbers . Any thoughts on cheaper financing?

[Joe Fairless]

@Jim Green

Re: adding value, two options to increase the NOI if the rents are at market rate. You can decrease expenses by looking for efficiencies (ex. more efficient fixtures and materials to save on water and electricity).

And/or, you can take the rents to the next level if other properties in your area are higher. In that scenario you look at those properties and see the differences between you and them and identify the cost to get you to their level. Then, what I do, is determine if that will get me at least a 20% return. 

For example, if I put in 5k a unit and raise rents by $100 a month then that's a 24% return that I'd do all day long. 

Re: the financing, it sounds like the property might not pencil, however, I'd speak to a mortgage broker about your options.