All Forum Posts by: Seth C.

@David, 

The question regards either my own accounts or accounts for a property owned by an LLC. I just want to maximize my ROI, so the most money from every aspect is best ;~). At this point in the conversation it seems like there is only hope for contingency funds, and it seems that should work in even a low-paying money market or something similar. What's the best case scenario locally?

Many thanks, Seth

I have a couple of medium sized MF deals available to me with solid demographics in terms of renting. There are a number of universities etc. nearby. However, the apartments are on the fringe of a high-crime area. They have gated parking etc. because of this, but crime still infiltrates. These properties appear to be high cash-flow properties, and one of them might even work with partial owner financing. 

My question is, when is it worth tackling crime (if ever), and is there some way to estimate financial impact? Depending on lease terms it may take 1-2 years to clean up the apartments themselves, but it is impossible to clean up the entire area. These apartments are 90%+ full right now but can be value-add as well. C property in B- to B neighborhood bordering on C- neighborhood, all taken in local terms--it is a high-crime city.

Try Milken Institute's

http://www.best-cities.org

They include high-tech in their projections.

Thanks Jimmy,

It is always good to have local input! Feel free to PM if you have any tips on the local MF market...

Since property value of MF is determined by NOI and CAP rates, there are three ways to affect property price: Revenue, Expenses, and CAP negotiations.

Specifically in the 20-100 unit space, if we define market as average rents, average expenses, and average CAP, my question is whether 70% below market is enough in MF, or if we really need a 60% Rule?

To break it down, What would be a) minimum below market rents/above market vacancies, b) above market expenses, and c) better than average CAP rates that you would consider to be bare minimums to consider a deal?

@Gary Landon:

Exactly the type of response I was looking for. Much appreciated.

I would never consider foregoing inspection. At the same time, I would never consider relying on inspection alone.

I guess my question is twofold. First, how often do major issues slip past professional inspectors? Second, what should I do to minimize this risk? Roaches for example seem like a significant issue, since they do not cause visible damage but can be expensive to disinfect. The money-pit cliche is one of the greater issues causing me unease at the moment.

What about repair reserves? It also seems like most major repairs that might come up can wait for a few months, so that a percentage of reserves could be kept in a CD or something similar, with a penalty for early withdrawal the worst-case scenario.

It seems easier for a professional inspector to find the problems with an apartment building than a mechanic inspecting a car, since so many vehicle systems are sealed. At the same time, there is some risk of missing issues in roofs, HVAC, plumbing, electrical, even appliances, etc. 

Are there any experienced investors out there who can help quantify these risks and/or point out what one might focus on? How big of an issue is this? I have a decent amount of experience in construction, but not enough to answer this to my satisfaction.

Thanks!