All Forum Posts by: Rahul Bhatt

Hey @Rahul Bhatt,

I don't personally invest in Decatur, but I have met some others that do and have gotten mixed reviews about it. Also, and I may be reading this wrong, but Decatur is not a part of the Huntsville metro area in my opinion; it requires driving out of our county and thought the one next to us and across the river, there's a lot of empty space in between. I've always felt bad for the people that commute to Huntsville from there, since they are driving into the sun both ways. I am sure you can find some better deals in the area, I rarely run into anything that rents that low (in Huntsville). Then again, I haven't done any large multifamily deals like a 50 unit. Reach out anytime, I'm always glad to help out any way I can. 

Best of Luck,

@Rahul Bhatt 

@Rahul Bhatt I've, personally, steered away from the $400/month areas and buildings but I don't know Huntsville from a whole in the ground.  What I'd be concerned with (in your shoes) are what similar units in other building rent for.  If your 2/1 units are renting for $400 and 3 blocks over there's an apartment that's renting for $300 you're probably not getting bottom-of-the-barrel tenants.  Which is great, but if there are $300/month rents you're likely in a "D" area, not a "C" area.  If the building 3 blocks over is renting for $500 you'll arguably have bigger issues.  Why?  You're probably getting the tenants that don't qualify anywhere else.  Which means that all of your "vacancy" assumptions go out the window.  There are eviction issues, partial rent payment issues, etc. and it just requires a lot more handholding.  And you'll be trying to hold those hands (even with a PM firm) from California.  Now if you were living in Decatur and thinking about Huntsville and you knew you could keep a close eye on it, that's one thing.  But sitting in California and visiting twice a year for a $400/month apartment?  Ouch.  I forsee pain, lots of pain.  

And with 50 units you have major, major expenses when it comes time to reroof or reseal the shared parking area.  Going back to simple math, if you were renting units for $600 vs. $400 that's a 50% change in rent.  If you use a % of rent for cap-ex holdback (imperfect but quick way to do it) you'll theoretically have 50% more dollars (renting at $600) going towards that pile of money used for that roof replacement.  Do you think labor is 50% more in a market with $600/month rents?  Do you think shingles cost 50% more in a market with $600/month rents?  

So if you know what you're getting yourself into, go for it!  But do some quick math on free-cash-flow and how many months of that free-cash-flow will be needed to cover a roof replacement (or pick another cap-ex item).  Then look at how many years of like that roof (or anything else) has left in it.