Currently, I get one off market listing in preium location in Bay Area like Sunnyvale 94087. Here are financial statistics:
Annual Scheduled Income: $240,000
NOI: $180,000
Sale Price: $3,000,000
Cap Rate: 6%
Value add potential:
5 bedrooms can be remodeled to increase rent by $5000 monthly and total rehab budget is about $450,000.
Some background about myself:
I am W2 worker in Bay Area and like real estate. To save time and reduce management cost, currently I only invest local apartments at preium location to accumulate positive cash flow. I am satisfied when rent increases and tenant profile improves after rehab.
This purchase is my last bullet. If I pull the trigger, I am worry about the impact of possible stock market burst. Meanwhile, this deal is the best deal I can find and I don't want to miss it. As you know, 6% cap in preium location is a good cap rate in Bay Area and value add potential is the safe margin.
Question: Do you recommend to purchase it under current stock market? Any suggestion is welcome.
Real Estate Agent · San Jose, CA · Member since 2023 · 182 posts · 104 votes
2mo
6% cap does seem like a great deal for Sunnyvale. I have been seeing 3-4% in that neighborhood. Does the building have lots of deferred maintenance? What is the unit mix look like?
Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 854 votes
2mo
Hey @Zhenyang Jin, stress test the numbers. What happens if rents take longer to increase, rehab costs run 20% over budget, or you have higher vacancies for a year? If the deal still produces acceptable returns under those scenarios, I'd be much more comfortable.
Hey @Zhenyang Jin, stress test the numbers. What happens if rents take longer to increase, rehab costs run 20% over budget, or you have higher vacancies for a year? If the deal still produces acceptable returns under those scenarios, I'd be much more comfortable.
Thank you for the useful suggestion. Yes, rehab costs is easy over budget and mortgage rate is also hard to estimate.