All Forum Posts by: David Monroe

@Adam

You are venturing into the hottest and most competitive niche in multifamily. The way most owners of student housing rentals setup their units is to rent the units by the room. This increases the rental income, thereby increasing the NOI and value of the asset. Be careful here because you will find the value for multifamily near universities to be very elevated for the reasons given above.

Although I haven't heard any case studies yet, you can assume, always check with an attorney before assuming, that if the community is marketed to only students, and at least 80% of the units are students, then this would fall under the same exemption of fair housing as elderly tenants, and the over 55 rule exemption. Again, alsway consult an attorney on fair housing issues.

It really depends on your market. A Class A property in Mobile, AL might be a Class B in DFW. If you're purchasing the property it really has no bearing on your investment decision, it's a social status. On the other hand if your selling or brokering the property then you will need to determine the market etiquette and how the investors in your market see the classifications.

As mentioned above by Brad T. rents and amenities are the strongest drivers of the classification. Age really isn't a factor below a Class A property because I can easily turn a 1940's apartment complex from a Class C to a Class B by adding amenities, upgrading the units, and raising the rents. You will find it almost impossible to turn a Class B into a Class A, although it can be done.

There are some good posts on this thread. In the Mobile, Al MSA we are seeing cap rates between 6-8% for cash flowing stabilized assets and $25,000-$40,000 a unit for value add opportunities. You can find multifamily assets below $20,000 a door for repositions.

Our insurance is typically $450 a door and taxes are around 1% of fair market value. The market rents for all class of multifamily properties are around $614 for 1BR units, $715 for 2BR units and $920 for 3BR units. The current market vacancy rate is 6% and aborption for the last 12 months has been 535 units.

@ChistopherZa

There is some good feedback and some bad in this string. As mentioned above anything with 5+ units is considered commercial. You're correct, you CANNOT get an FHA loan. They are only good for residential properties with 1 to 4 units. BTW, you DO NOT have to be an LLC or other commercial entity to purchase a commercial property. It just makes financial sense to do so.

If you know that you have to get a commercial loan and put 20-30% down, depending on the lender, you and the property, then why is their a big concern of you living in the property or not? 

If the seller is asking too much for the property then one of the tools you can do to determine if the value fits your investment criteria is a reverse cash flow analysis, otherwise known as a discounted cash flow analysis, to see if the purchase price makes sense, especially if your using a cap rate as your benchmark. The analysis is beyond the scope of this post, but if you email or contact me directly I can do one for you and let you know if it works.

The other widely used method to determine if your paying too much or not is to use the comparable approach and find the average price per unit value for that market and submarket. You will need a local broker or appraiser to assist in finding that data, unless you have access to CoStar, Axiometrics or REIS Reports. If you need help locating someone in your market I can help with that also.