There is a 4 unit building for sale in my area. One of the units is a 3 bedrooms 1,535 sq ft, one is 2 bedrooms 1,170 sq ft and two units 2 bedrooms 850 sq ft, but only one of the 850 sq ft one is being rented for $400. The building is going for $110,000. My concern is should I make a offer on the building that is 1/4 rented? The owner is saying the 3 bed was getting $600 and the 2 bed 1,170 sq ft was getting $525 which are low.
Hi @Frank Daly , as long as it's priced like a 3/4 vacancy and you think you can rent it out relatively quickly you should consider it. This is where your value add will make you the most money. How are the rental rates in the area? Is the area growing? Why can't they rent it out now? Is it poor management? Can you do better?
The owner lived in the 1534 sq ft unit. The owner passed away. The family only renting to family and friends only. The only renter is a friend of the family. The other problem is that I will have to pay for the water, sewer and gas. If I offer $80000 and up the rent it should work. The area is is not bad.
I'm looking at a 32 unit apt complex that only has 7 units rented. It's all about your confidence in filling it up and knowing what market rents are. I'm betting market rents are lower in this property and sounds like you have some owners who don't know what they are doing.
Need to consider a hold period, market rents, capital expenditures, oper expenses, market vacancy, reversion value, your desired irr, what type and how much finan. you plan to obtain, how it affects your level of risk, etc. a lot of questions to answer.
And then how each of those variable might change throughout your ownership on an annual basis in order to come up with your expected CF stream.
If you evaluate those items and the returns on invst are satisfactory you have a deal.