All Forum Posts by: Steve Davis

@Nathan Gesner @Ben Leybovich @Adam Lacey Thanks Gents!

@Ben Leybovich Ben, thanks. The only way the owner of the Sutherland Ave apartment can increase rents to market value or renovate the units is once a turnover occurs. The tenants can stay in the unit for as long as they would like subject to an annual rent increase of 1.5% provided the owner exercises that right. It is likely the majority of the tenants stay in the property for many years. Thus continuing to have an underperforming asset. The benefit to me building a new apartment is I will be fetching premium 2023 rents. What do you think?

I am building an 18 unit apartment complex late spring to be completed in 2023. I live in Canada. So cap rates are generally low, construction costs are high thus the overall real estate in my market and City I live in is expensive. I am looking to sell my building in and around the $8.5MM range. A 16 unit apartment in the same area as where I am building got listed a few days ago for $5.5MM. This building was built in 2014 (out dated see pictures) and the City was completely different and small town vibe even if it was only 8 years ago. Rents are significantly under rented. Below is my pro forma for the two properties the one I am building is Bevan Ave. From an income approach the numbers work for me but from a cost per unit approach it does not. I am wondering which method I should be more dependent on. Please feel free to read below and help me out. Thank you.

Sutherland Ave Apartment

List price: $5.5M

16x units

Year Built: 2014

Similar location to future Bevan Ave development

Laminate, old carpet, outdated … could almost say it needs renovations. See pics

Gross annual income: $250k

_______________________________________

Using income approach with cap rate

$250k x 0.8 = $200k / 0.0366 = $5,464,480 value (3.6 cap rate with 20% operating expenses (newer building but still operating expenses quite low))

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Future Bevan Ave development

Desired price: $8.5M

18x units

Year built: 2023

Finishes: Quartz, new

Projected gross annual income: $384k

Using income approach with cap rate:

$384k x 0.8 = $307,200 / 0.0366 = $8,393,442 (3.6 cap rate with 20% operating expenses (brand new building 20% operating expenses more realistic)

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Comparing the properties by gross income. $384k (Bevan) - $250k (sutherland) = $134k x 0.8 = $107,200 / 0.0366 = $2,928,961 therefore Bevan is $3MM more valuable. Strictly from an income point of view.

INCOME APPROACH VS COST PER UNIT !!!??

My concerns…

SUTHERLAND: 16x units at $5.5MM is $343,750 per unit …

Therefore Bevan has 2 more units so … $343,750 x 18 = $6,187,500

What is a more valuable and an accurate measurement? cost per unit or income approach using cap rate?

Any information and input is appreciated! Thanks!

@Account Closed Hi Steven. I won't have a project lined up for at least 8 months but from then on out I will be looking for a labourer / site cleaner on an on going basis to help make the job site presentable. Will pay hourly and cash. 

@Tanner Carswell @Francois De Gourville sweet! Unfortunately I do not have a premium account so I can't send a DM to both of you at once. Maybe we can meet up over the weekend? Send me a DM if you are interested and I'll try to organize something :)

Hi BP members located in the Kelowna & Okanagan area

Would anyone be interested in an investors meet up? I know circumstances aren't ideal right now with COVID but I think it could be fun to get a few people together to talk about real estate over some coffee

Steve

What is the cap rate for new construction multi family apartments in Kelowna BC?

@Mario Russo 

Hi Mario,

   Various Cities have different product offerings and will require you to find your niche. Have you considered purchasing run down property for land value in "4 plex" zoned areas and building your apartments? Depending on the construction cost in Minneapolis this could be a great opportunity for value add and potentially to cash out re-fi... 

.  Just a suggestions. Hope this helps and good luck!

Steve

@Quincy Lockett thanks

@Quincy Lockett

Likely $1MM or more based on a 75/25 LTV