Originally posted by Robert Mack:
Is it possible to purchase a 50 unit building or smaller for $20k per door with rents being around $650 per door? Location does not really matter, but I am going to look into Texas.
The best guess you can make at that is to search around and see if you can buy this right now. If you ask me this question for Denver, I'd say, no, that's unlikely. But I don't know your market at all. Research what's available right now, and if its close, then you have some hope of finding that three years from now.
Honestly, I think paying $20K (I assume that includes any rehab) for $650 for rent is a SCREAMING deal. You're certainly not going to be able to do that easily. Or, if the MLS is chock full of such deals, then it won't be a deal.
Also what would be an estimate for loan terms be? In 2-3 years, based on your estimate, would it be feasible to purchase the above building with 30% down 7.5% interest on a 20 year term?
Anybody who can answer this question doesn't need to worry about buying 50 unit apartment buildings. If you can predict interest rates three years from now, there are much easier ways to turn that knowledge into cash. For that matter, if you can accurately predict interest rates next week you can make money.
If you asked these questions in 2006 you would likely have gotten very confident answers. Answers that would have been totally wrong. If your business plan relies on accurate answers to these questions, then it only works if those predictions (guesses, really) prove correct.
A better approach is "scenario planning". With scenario planning, you define a set of scenarios, and determine the outcome of your business based on each one. What you outline here is one scenario. Another might be that interest rates are 15% (its happened before). What does your business look like then? Another might be deflation has set in with a vengeance and that rents for those units are only $300. ETC.