Author Topic: Buying An Apartment Complex As An Investment  (Read 824 times)

leomatthewadams

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Buying An Apartment Complex As An Investment
« on: October 14, 2019, 10:29:33 AM »
Does anyone have any experience buying small apartment complexes like the on seen here:

https://www.upflip.com/listing/california/california_hanford_armona_apartments_218613

Is a 9% CAP good?  What is the #1 factor one should be looking at when making an investment like this?  How hard are these types of places to manage if you live a ways away in another part of the state?

Papa bear

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Re: Buying An Apartment Complex As An Investment
« Reply #1 on: October 14, 2019, 01:37:47 PM »
A 9% cap rate on C area residential property is way lower than I would expect or even look at.

Things to consider:

4+ unit residential property is commercial property and will require commercial loan terms.
Management of C area units is a pain in the ass.  You will have more damage, higher turnover, and longer vacancy.
5 1/1ís means you have 5 kitchens, 5 furnaces, 5h20 tanks.  I get better total rents on 2 units in Ohio and have less than half the headaches by unit.
Itís already rented above market rate.  Thereís no upside with capital improvements.

You could do ok on this if this was part of a larger portfolio and you could hedge your risk or had your own PM to manage. Say you had 40-50 units and had your own guy. Adding this to it would be a decent cash bump because your management costs would be fixed and you would have plenty of other rents to cover if you have 2-3 vacancies and major turn costs.

With 4+ unit places at rents below 800, I usually consider 30-50k/ unit cost.  So I wouldnít go any more than 250k on this.


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NorCal

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Re: Buying An Apartment Complex As An Investment
« Reply #2 on: October 14, 2019, 04:55:49 PM »
First off, whatever real estate deal you look at, people will immediately jump down your throat saying it's a horrible deal.  I'm not sure why that is, but I find it pretty obnoxious.  Every market is different, and a "good" deal in your market will look very different than a good deal in NYC, which will look very different than a good deal in rural Arkansas.

Also, FWIW, I don't currently own investment properties, but am actively exploring the idea.  So take this with a grain of salt.

Whether or not 9% cap rates is good depends entirely on your specific market.  I've heard of some markets that have 13%+ cap rates, and others that have 2-3% cap rates.  Compared to Denver (my market), 9% is very good.

Now my words of warning:
1. You are taking that 9% cap rate from an agent's marketing material.  You might as well use that marketing material as toilet paper.  Do your own math.
2.  Papa Bear is absolutely right about a Property Manager.  Managing this type of property is not for the feint of heart.  If it were me, I would only do this with a property manager I've previously vetted, and is comfortable managing this type of property.
3. Pictures show a story of LOTS of deferred maintenance.  Go into something like this with a sizeable budget for capital improvements and maintenance.
4. I would only recommend something like this as a first-time investment if you're local.  Even with a property manager, this has a look of a place that will not be low-headache or low-maintenance.

Another Reader

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Re: Buying An Apartment Complex As An Investment
« Reply #3 on: October 14, 2019, 05:33:49 PM »
The GSI appears to be $45,000 ($750 x 5) and the NOI is $41,000???  Ask the broker how he got to THAT number...

The real cap rate, considering vacancy and collection loss, taxes, insurance, and repairs is probably closer to $22,500/$450,000, or 5 percent.  And that is a bad property in a bad location...

Papa bear

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Re: Buying An Apartment Complex As An Investment
« Reply #4 on: October 14, 2019, 08:40:09 PM »
First off, whatever real estate deal you look at, people will immediately jump down your throat saying it's a horrible deal.  I'm not sure why that is, but I find it pretty obnoxious.  Every market is different, and a "good" deal in your market will look very different than a good deal in NYC, which will look very different than a good deal in rural Arkansas.

Iím one of the jump down your throat, horrible deal posters.  Weíre all just assholes!

Actually, what I see here is that the people who post questions on specific real estate typically are asking about questionable properties.  Thereís a reason someone is asking the random internet strangers for comments.  Itís not a home run. 

No one posts about the remodeled 250k two unit renting at 1500/side in an up and coming neighborhood. They just buy it.  Thereís no time to ask Internet strangers about the place.


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waltworks

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Re: Buying An Apartment Complex As An Investment
« Reply #5 on: October 14, 2019, 09:53:36 PM »
LOL. Yeah, the really jerk thing to do, you know, would be to tell people their terrible property is a GOOD investment...would you rather have someone burst your bubble now (cost to you: $0) or buy a place that you lose money on for a decade?

Here's the thing: there are basically no great deals out there unless you are willing to go well outside your local area/get creative/get lucky. Prices are very inflated. They might stay that way for a long time, they might crash, they might stagnate - but your $500k house that rents for $2200 a month is not a good deal regardless unless you are counting on the third leg (luck) of that trio.

Lots of people who have never owned real estate are really excited because "in my city property values are up 150% in the last 7 years!"  Those people have not lived through a real estate cycle, and it's a little unfair to call them dumb since they're mostly just inexperienced but...

Don't be the dumb money.

PapaBear is also right that the folks who find good deals mostly... buy them. They don't ask strangers on the internet for free advice. So there's some selection bias here as well.

-W

nancyfrank232

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Buying An Apartment Complex As An Investment
« Reply #6 on: October 14, 2019, 10:58:18 PM »
Does anyone have any experience buying small apartment complexes like the on seen here:

https://www.upflip.com/listing/california/california_hanford_armona_apartments_218613

Is a 9% CAP good?  What is the #1 factor one should be looking at when making an investment like this?  How hard are these types of places to manage if you live a ways away in another part of the state?

I like commercial property. Just not this one. The #1 factor for me is if I really love the property. Since this is going to be a long-term decision, I need to really love everything about a property

For this a 9% cap indicates poor area, rough tenants. Not surprising that this is in a designated opportunity zone

$750/door/mo is $45k/yr gross. Listing says $41k/yr NOI which is impossible. NOI easily wiped out with one hiccup

Difficulty of distance managing is correlated to the number of PM companies in the area. Large landlord-friendly metro with jobs and in-migration = easy. Vice versa
« Last Edit: October 15, 2019, 07:39:31 AM by nancyfrank232 »