All Forum Posts by: Account Closed

You're correct, they would sell at a new market cap rate, but I'm not sure there is as much of a gain (at least with this deal) because in order to increase the NOI, you're likely going to have to spend some money to do so.

See the attached image. If market cap rates are 6%-7%, this deal (once stabilized) should be able to sell for somewhere between $2,166,971 to $2,528,133. That is quite the spread. Let's say it settles at 6.5% cap rate, or $2,333,661 sales price. That may seem like a good return - $238,661 profit - but it is unlikely the new owner is going to be able to raise the income to the 'Stabilized' level without spending some money along the way through renovating units or general building maintenance. How much is the question...and this is where good deals are won or lost. 

@Dustin Beam A cap rate is just a math problem; not quite a market force, because they fluctuate so much and again are determined largely by how the property is being run.

Remember, there are a number of ways to play the game, and not everyone is aiming for the 3-5 year flip. For example, we just sold a 21-unit apartment property to a private investor at a 4.56% cap rate. The market that this particular property was in commands cap rates in the 6%-7% range. The reason this investor paid a premium is because they're looking at this property over the long term. The property was impeccably maintained; and the reason it was such a low cap rate at the time of sale was because the rents had been kept artificially low by the sellers of the property who had owned it for 40 years. While the new purchaser of the property is entering it at a current 4.56% cap rate, by years 3 to 4 they're going to be at a solid 7%-7.25% cap rate and it will be a great long-term investment for them with potential for appreciation as well. 

While I can't speak for other markets, I can tell you that anyone who is walking into an 8%+ cap rate building, for the most part, in the Chicagoland market is buying in an area that is not increasing in value and will not see much appreciation if any. Cashflow and appreciation tend to work in opposite ways...the more of one, the less of another. The trick is finding the gems that allow you to achieve the most of both.

@Dustin Beam you eluded to a key point regarding cap rates; they’re a kind of nebulous metric because they can fluctuate largely depending on how the property is operated. This is why we use gross rent multiples and price per unit metrics alongside of cap rates when valuing deal (not to mention stabilized forecasts).

@Igor Levit like all things, it depends on what your definition of ‘good ROI’ is. We are selling garden style apartment complexes in the suburbs of Chicago (all suburbs) for anywhere between a 7%-11% cash on cash depending on the suburb.

In the multifamily brokerage space, all we do is cold call. We generally don't list on the MLS or Loopnet, so we source our business by cold calling owners directly, building relationships over time, and hopefully being their choice when they go to sell their property. That said, many of these owners are receiving cold calls from a host of people, myself included, so if you're not the one personally making the phone calls you're likely not going to see any tangible results...@Jack Bobeck said it well; real estate is a people business.

@Arturo Colmenero you could try referencing zoning maps to look for multi family pockets but your best bet would be to subscribe to a service like Reonomy for example if you’re serious about finding multi family properties

@Reggie Maggard are you referring to cold calling property owners to see if they’ll sell you their property?

@Yasiel Figueroa it likely depends on what the parcel in question is zoned for, what the scope of the project is, and if the current zoning currently supports the scope or if a zoning variance would be necessary. Short answer is: it depends

Originally posted by @Peter Halliday:

@Account Closed is there a benefit for doing this as an investor?  Say I have a lead in one of the NW Suburbs to buy an older owners condos. He owns half the eight-condos building. All them owned by investors. And as I was talking to him told me the other owners might be interested in selling too.  Would there be a benefit of doing a conversion? 

There could absolutely be merit in deconverting the building. The biggest questions becomes this, "Can the income generated by the individual condo units (as rentals) increase the value of the unit beyond what could be attained if sold off as a standalone condo?" The apartment market is so good at the moment that many condos are worth more if sold as an entire building. That's where the potential benefit it.  

@Sam Fried I may be biased, but I'd say reach out to the local commercial brokers in the MSA you are targeting. And I'm not talking about those who sell office buildings or retail strips, but many major MSAs have brokers that only sell apartment buildings. Our company for example sells anything from 6 to 250 units. We have a couple of 150+ complexes on the market currently, as well as buildings like a small 8 unit. Most of our deals NEVER HIT LOOPNET. We sell them direct to investors. 

Just ask to be put on their mailing list for new listings as a start and you can begin to see what kind of inventory different MSAs house.