Help me analyze this deal

9 Replies

I walked the property today and currently am working on getting it put under contract. This is a 6 unit building in Washington, DC, with a current NOI of $53,000. The current owner has only 4/6 units occupied and rented for well below market rent avg of $1600 a unit. My intention was to make this subsidized housing and rent each unit $3872/ monthly, which is 100% government paid. I believe my biggest obstacle will be relocating current tenants to different housing.

FYI in order to get that type of rent I would need to convert each unit into a 3br which is very doable, I am estimating $300,000 in repairs to do this. Otherwise if units stay 2br units which they are currently the government pays $2872. If I am missing anything in my anaylysis BP family let me know. 

View report

*This link comes directly from our calculators, based on information input by the member who posted.

Originally posted by @Lawrence Smith :

I walked the property today and currently am working on getting it put under contract. This is a 6 unit building in Washington, DC, with a current NOI of $53,000. The current owner has only 4/6 units occupied and rented for well below market rent avg of $1600 a unit. My intention was to make this subsidized housing and rent each unit $3872/ monthly, which is 100% government paid. I believe my biggest obstacle will be relocating current tenants to different housing.

FYI in order to get that type of rent I would need to convert each unit into a 3br which is very doable, I am estimating $300,000 in repairs to do this. Otherwise if units stay 2br units which they are currently the government pays $2872. If I am missing anything in my anaylysis BP family let me know. 

View report

*This link comes directly from our calculators, based on information input by the member who posted.

 6 units...The property is subject to rent control. Dont count on be able to get those rents up. 

@Russell Brazil   Thanks for the information.  Could you give me a bit more insight on rent control ? I assumed if I was able to get the tenants to relocate I wouldn't have to worry about that with new tenants in the building. I would like this information for future investments. Thanks >>

Originally posted by @Lawrence Smith :

@Russell Brazil  Thanks for the information.  Could you give me a bit more insight on rent control ? I assumed if I was able to get the tenants to relocate I wouldn't have to worry about that with new tenants in the building. I would like this information for future investments. Thanks >>

 How do you think you will get them to relocate? Why give up a rent controlled apartment?  I got a friend in Dupont Circle living in a rent controlled unit, hes been there for 30 years, and hes paying peanuts. There is no incentive for him to ever move. 

@Russell Brazil So is your suggestion, never go after properties in DC that currently have tenants ? Don’t invest more into DC ? Just trying to figure out a solution. I see you are investor in DC as well, so if you have ever dealt with reposting a property with this type of scenario, ideas would helpful.

Originally posted by @Lawrence Smith :

@Russell Brazil So is your suggestion, never go after properties in DC that currently have tenants ? Don’t invest more into DC ? Just trying to figure out a solution. I see you are investor in DC as well, so if you have ever dealt with reposting a property with this type of scenario, ideas would helpful.

 I invest in DC, Im just saying if you are buying a rent controlled building, do not count on being able to raise the rents as part of your strategy. The probability of being able to get tenants out and get market rate rents, isnt particularly high. Maybe you get 1 or 2 of the units for that to happen for, but it likely isnt happening to all 6, at least not on a short time line. And in years when you finally got the 6th unit to market, those first couple are now below market.

Originally posted by @Lawrence Smith :

@Russell Brazil Gotcha thanks, that makes sense. What resources do you use to verify if it’s a rent controlled building ? 

 If you own 5 units in DC you are subject to rent control. Could be 5 separate singles, a tri-plex and a duplex, any combo that gets you to 5 units. So a 6 unit building is defacto rent controlled.

@Russell Brazil not every property is subject to rent control. Only buildings built before 1975 and 5 or more units. So you need to confirm the age of the building. In addition there are ways, even if rent controlled, to mark the rents to market. If you substantially renovate a unit you can claim a hardship and use the cost of renovations to raise rents. There is lots of information about this on DCHD’s website.  many developers who play in larger rent controlled buildings use this strategy.