Investor · AR · Member since 2015 · 2 posts · 0 votes
I'm a investor/flipper in Little Rock. Another retiring investor is offering his entire inventory of single family rent houses (50+) at a cap rate of 5%. These houses are mostly located in what has been described to me as "war zones" in North Little Rock AR, asking prices are in the $40-60,000 range.
A management company is in place.
Another experienced investor is telling me that cap rates in those neighborhoods should be more like 20%, without going into specifics on addresses does anyone have any input on this?
Assuming the seller is willing to be reasonable about valuation, is it even possible to finance such a transaction?
NLR is a street by street analysis for sure. I would be very cautious of purchasing anything in the truly rough areas of NLR. Although, NLRPD has stepped up gang patrols in the area and ATF is targeting many of those areas as well so there is potential for improvement over time (potential being the key word). That price range sounds high if the properties are where I'm thinking they are.
What management company is the owner using now? I'm trying to find one in LR for C grade rentals.
Cap rates should be far north of 5% that is for sure, 20% sound more realistic. Your area should deterring the actual market numbers and as a investor you should already know the cap rates and not be asking here...
Anything can be financed but I would not waste my time on this deal as the seller is too far off the numbers.
@Kevin Layman Sounds unrealistic on the price. And from everything I have heard about North Little Rock I would run away even if you do get them at a 20+ CAP...my two cents.
NLR is a street by street analysis for sure. I would be very cautious of purchasing anything in the truly rough areas of NLR. Although, NLRPD has stepped up gang patrols in the area and ATF is targeting many of those areas as well so there is potential for improvement over time (potential being the key word). That price range sounds high if the properties are where I'm thinking they are.
What management company is the owner using now? I'm trying to find one in LR for C grade rentals.
There is no way any property in one of NLR's "war zones" would be worth $40,000. Those areas are more of a $10,000 kind of neighborhood, at best.
That's not to say those areas aren't worth investing in, I've got a few properties there myself, just be sure of what you're getting yourself into.
@Kevin Layman don't do it unless you can do it on a seller financing deal with amazing terms. 5% cap rate is horrible especially for all of the time you'd spend chasing rent and repairs which is common in "war zone" areas. The only way I'd consider a deal like this is if, 1. the seller financing terms are excellent and 2. if I had a comparable portfolio (in size/income) in better neighborhoods to offset some of the vacancy/repairs and late rent you'd certainly have to deal with. Consult a local investor in your area who can run the numbers on the deal with you. Best of luck!
I don't currently have any rentals and no experience at all in lower-priced areas. I'm aware of the many problems with this type of property but was willing to consider it thinking the number of doors and existing management could make it less problematic to get started.
Even if the price were reasonable it's not clear to me what type of lender to approach as it's not really a commercial or multi-family situation.