Rehab Multifamily: How to know if it will rent?

Question

Hello Bigger Pockets:

At the moment my father and I are looking at a 11 unit multifamily property that is very distressed. It's been abandoned for around 2 years, but it still has good bones. The property is in the small agricultural town of Edcouch, TX. It's about 25ish minutes away from the metropolitan area of Edinburg. We are purchasing the property for 106K and believe it needs around 100K for it to be up to code and be ready to rent. So the investments would be 206K, and we believe that it could be worth 400K when fully rented(rent of 600, cap rate 10%, expenses 45%). We have been doing house flipping for about 2 years, but have never done anything with multi family properties.

We know it's at a good price , but how can evaluate wether there is going to be enough demand to rent? What are the metrics you look at when deciding this?

Thank you

Dena Puliatti · Answer

Congrats on your find!  The multi market is tight!  The best thing you can do is contact a few local property managers and see what they have to say about rentability in that area.

Andrew Freed · Answer

@Jose Manuel Ramirez - Good question and sounds like a solid opportunity. I can speak about determining rental demand in the area. I would talk with an agent and have him or her pull recently rented apartments from your local MLS. See if there are a ton of rentals comps in the area or not. That will give you an indication about the rental demand.

Another really good strategy is posting a fake rental ad to see the level of demand. I posted the below ad with pictures on zillow, apartments.com, and Facebook marketplace and got a ton of interest. It gave me a good signal that rental demand in the area is strong.

"Generously sized 3 bedrooms 1 bath side by side apartment. All new flooring installed in living room and bedrooms. Professionally cleaned. Energy-efficient vinyl windows. Large eat in kitchen with stainless steel range and refrigerator. Spacious closets. Large dining room and living room. Coin-op laundry in basement. Centrally located and close to town, the grocery store, and the playing field, restaurants, walking trails, and the library. No smoking. Good credit required 650+ and income of $4200 net monthly. Lawn, snow removal, trash, and water. Off-Street Parking for 2 cars."

Lastly, take a look at the census data and city-data.com and determine the population growth, average income, diversity of employers etc to see if this is a good market to invest in the long term.

Jose Manuel Ramirez · Answer

@Andrew Freed Thank you for the advice! Very good strategies to figure out demand. We will be sure to employ them.

Rene Lee Ramirez · Answer

Hello Jose, I am a Realtor in the Edinburg area and thought i'd put my two cents in. I would definitely look for complexes that are similar to yours in your area and check their occupancy levels and prices to see if you're price is substantial for the area. Edcouch Tx. is 25min away now but soon, the expansions that TxDot are doing will connect the two cities and the commute will be way more tolerable.

Multifamilies in Edinburg are mostly filled, and the population in the valley has been rising steadily over the past decade, I do not think you will have very much trouble getting your unit rented but if you need anything please don't hesitate to reach out.

Thank you

Luke Grieshop · Answer

What Dena had mentioned is the best 1st step. Also, do a little diving into market demographics such as population growth, job growth, median household income, etc. At first glance, it looks like Edinburg's population has been steadily climbing over the past decade

Jose Manuel Ramirez · Answer

Thank you Mrs. Puliatti for the advice. We will be sure to dial a few managers and see what they tell us about the area.

Rehab Multifamily: How to know if it will rent?

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