Author Topic: Help me evaluate a Quadplex. Evaluating current/projected rents after renovation  (Read 798 times)

tmbrown

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Hi Mustacians,

I have a question about evaluating current versus future rents. Currently, I'm looking at a quadplex that was recently rennovated. According to the executive summary document, the rents have not been raised (I also cross referenced this with their old zillow rental ad) since the rennovation. Currently, the owner is pricing the property as if the rents are their projected rate, versus their current rate. Obviously, this needs to be discounted, but my question is how would you discount this? This is a very expensive property, but its in a very desirable neighboorhood. For what its worth, my sister is from this city and she said the rental projections seem pretty much in line with what she'd expect. She's not a real estate pro, and obviously this would need to be confirmed by a property management company, etc., but she has many friends that live in this area so you could call it practical experience. However, the fact remains that people still may be on old leases. Also, they're projecting some expense decreases which seem a little wonky to me.

You can check out the executive summary if you want. It has all the pricing. I'm not worried about anyone stealing this from me, since I think the price is pretty out of line with what an investor would be searching for. Also, I'm more interested in this analysis than landing the deal itself.

Executive Summary
http://x.lnimg.com/attachments/08D45C9D-E89A-4380-BDEC-B8A2863BA900.pdf

« Last Edit: March 22, 2017, 07:41:43 AM by tmbrown »

tralfamadorian

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Currently, the owner is pricing the property as if the rents are their projected rate, versus their current rate. Obviously, this needs to be discounted, but my question is how would you discount this?

The questions I would look into would be:
1) When do the current leases end?  Are they month to month?
2) Is there rent control or other regulation in place that would prevent you as a new landlord from being about to raise the rent to market rate upon the end of that lease?

Also, it's a little unusual that the property is being presented as multifamily and priced by cap rate.  Being a quad, the property is residential and obtaining a loan would be dependent on market comps.  A commercial property (5+ units) loan would be priced on cap rate.  But I don't know anything about Tampa; maybe this is something they typically do there. 

An additional thing that you may be well aware of- FEMA has done a lot of adjusting of flood maps and raising of insurance rates.  I know quite a few locations in other coastal cities that were not cited as being in the flood plain a year ago that now are and have $1k+ premiums a year for modest SFH.  This property appears to be close to the water so some questions may be in order.

Scortius

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I bought a quadplex with under-market rents, but it was priced accordingly.  Naturally, once we started to raise rent, all hell broke loose.  There were extra periods of vacancies.  Spats with the current tenants.  Unfortunately, they were all long-term, so we didn't have the option of simply waiting them out.  I tried my best to be upfront with them and give them extended windows to plan ahead, but it's just impossible to go through a process like that without things getting emotional and messy.  You'll need to take that strongly into consideration.

And yes, quadplexes are the sweet spot because they qualify for residential loans.