Real Estate Agent · Atlanta, GA · Member since 2014 · 135 posts · 40 votes
Between everyone on Bigger Pockets there is probably thousands of years of REI experience, I was wondering if you all wouldn't mind using that experience to give me your opinions on this deal.
236 unit apartment complex a low Class B or Class C small 13,000 population town that is on the rise.Mix of 3-4 bdrm duplexes and SFH's that are rented out with lots of common areas throughout. At 100% occupancy revenue is $1.9 million. Occupancy ranges from 87% during their turnover season to 94% at peak.
The complex has in house maintenance and leasing staff and reports expenses at 340k.
At $9.4 million do you think this is a good deal?
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
So he should sell at market or hire a manager. Do you think market is only 5 times gross rents? It seems that in today's economy it would be at least 10 times. An investor is not going to discount 50% just because he is retiring. Something is up.
Brooklyn, NY · Member since 2015 · 33 posts · 13 votes
10y
That's a big deal. Hard to wrap your head around. With the numbers you presented it seems to be 12-13% ROI (assuming 10mm cash buy o.o) and omitting allowance for cap-ex. How and who is financing this?
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
-Even the GRM seems crazy low. They ONLY want 5 times gross rents. On the face of it it is TOO good to be true. Either the gross rents are exaggerated or the expense and vacancy are grossly understated or the town is dying.
Real Estate Agent · Atlanta, GA · Member since 2014 · 135 posts · 40 votes
10y
It's actually great because the town died a few years ago and is currently on the rebound. Steady population growth and household income the past few years. I wanted to get some opinions on it before bringing it to a buyer. It's not my listing but I want to bring a buyer to the deal for a co-broke
It's actually great because the town died a few years ago and is currently on the rebound. Steady population growth and household income the past few years. I wanted to get some opinions on it before bringing it to a buyer. It's not my listing but I want to bring a buyer to the deal for a co-broke
Then that does not answer why they are willing to let it go for ONLY 5 times gross rents does it.
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
So he should sell at market or hire a manager. Do you think market is only 5 times gross rents? It seems that in today's economy it would be at least 10 times. An investor is not going to discount 50% just because he is retiring. Something is up.
Well I'm not representing him I'm looking for a buyer. If he's undervaluing his property better for me
Tylon, you are going to fight me to the end on this aren't you? Ha ha! A common real estate scam is the old investor just trying to get out of the business to retire to Floridy and wanting to help out some new novice investor. I bet his wife is selling you her car that was only driven to church once a week!
I'm a Boomer and have been doing real estate near 40 years. I am not about to walk away from a profitable investment that I've spent decades building up. Maybe your market is that bad that properties can ONLY command 5 times gross rents. That is NOT where I'd be investing.
From an old TV show, "Danger, Danger, Will Robinson!"
Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
10y
@Tyion Bridgeman Is it subsidized housing? Also, what is the general repair of the building as well? I'm with Bob, there seems to be something more to this.
Real Estate Agent · Atlanta, GA · Member since 2014 · 135 posts · 40 votes
10y
@Account Closed Thats a good point. You have a lot more experience than I do so Iḿ inclined to listen to you when you say the deal is too good to be true, but it seems like the consensus is that at face value the deal is good enough to try to start prospecting to find some buyers. If someone is a qualified buyer I can get all the books and records and they can do their own underwriting and see what they think its worth. Like I said the big downside is that the home is in a small town that recently hit rock bottom but signs are its on the way up.
@Zach Quick The buildings seem to be in great condition. The buildings were built very well 50 years ago for families of soldiers on the local military base but the base eventually closed down which is what caused the town to start going down in the first place.
This may not be a good deal based on the info you've provided.
Here is a quick math:
Net rental income = $1.9M * 0.88 = $1.672M - assuming 12% economic loss
Expenses at $4500/unit = $1.062M
NOI = $1.672M - $1.062M = $610000
Value at 8% cap = $7.625M - far cry from $9.4M
You may change the cap rate an expense assumptions to see if you arrive to a different valuation
Nick
Geez Nick. At $7,625,000 that is ONLY a 4 GRM!!! But then you are using expenses of 68%!! Not sure where you got that but it would support my contention stated earlier that the property had greater than normal expenses. At 4 or 5 GRM I am saying they are giving the property away. If I were one of Tyion buyers I'd expect him to have an educated answer to that or I wouldn't want to be on his buyers list in the future.
Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
10y
Bob, GRM is almost useless as it does not take expenses into account. If two properties have the same gross income, should they be valued the same? I think value depends on the NOI, doesn't it? Gross rents don't tell you much without expenses.
I used $4500/unit expenses which is on a lower end of spectrum for C class. Expense-to-gross ratio is irrelevant. You don't assume expenses to be a %% of gross. You calculate/budget them independently and then calculate the ratio as a sanity check.
Real Estate Agent · Atlanta, GA · Member since 2014 · 135 posts · 40 votes
10y
Ok so I need to get more information before bringing it to any buyers. I'm going to take that advice and email the listing agent for total expense information. I know other buyers are currently exploring the deal but the seller doesn't like the terms.
Bob, GRM is almost useless as it does not take expenses into account. If two properties have the same gross income, should they be valued the same? I think value depends on the NOI, doesn't it? Gross rents don't tell you much without expenses.
I used $4500/unit expenses which is on a lower end of spectrum for C class. Expense-to-gross ratio is irrelevant. You don't assume expenses to be a %% of gross. You calculate/budget them independently and then calculate the ratio as a sanity check.
Nick, I think GRM is extremely useful IF your GRM comps are actually comparable. Comparable properties SHOULD have similar expenses. If you blindfolded me and dropped me anywhere in the USA and showed me this deal I would immediately question the 5 GRM. I am lazy though but this is really the first, easiest screening for this property. As I stated before my guess would be that this property was in a dying area, or had some way above normal expenses (historic property in a historic zone where any changes have to go thru stringent planning dept., etc. or under some invasive govt control like rent control on steroids, or just leases grossly under market value. I would not bother to start "figgering" (math is hard) until I had the answer to why the GRM was so low. Then I agree it is all about the NOI and then good metrics would be NOI per unit, NOI per sf. etc. Your calculations of 68% expenses ONLY confirms my opinion that I got by doing one simple division. I like to keep it simple.
So yes gross rents to sales price tells you a lot at the start.