Author Topic: Yield or Appreciation  (Read 6100 times)

nealashley

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Yield or Appreciation
« on: October 12, 2012, 08:16:29 PM »
There is an 8 plex in my market for sale at what I consider an attractive price. The owner is cash strapped and motivated.

The 8 plex is not in a great area but not the ghetto either. Only one unit is currently vacant and I've requested the rent rolls for the property as well. All the units are also 1BR/1BA. The units rent for 350/month and the asking price is 115,000. This could be picked up less IMO.

I'm curious if I would be better off paying for location OR going with this one for the yield. Any other multifamliy investors have insights on this?

Any advice is appreciated.

TomTX

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Re: Yield or Appreciation
« Reply #1 on: October 13, 2012, 07:58:56 AM »
As long as you don't have serious vandalism (or similar) problems and the property has been maintained reasonably well - sounds like an awesome deal. Cash flow is definitely there. My uncle became wealthy in a matter of 10 years through rental real estate, but I've been too chicken to take the plunge (yet.)

arebelspy

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Re: Yield or Appreciation
« Reply #2 on: October 13, 2012, 08:36:04 AM »
That is a decent deal.  If you can pick it up for less, that would push it to a great deal.

On a multi family like that cash flow and appreciation is often two sides of the same coin, due to cap rates.  Multi family doesn't appreciate the way SFRs do.

Cash flow versus appreciation depends on your strategy and time to FIRE. 
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tooqk4u22

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Re: Yield or Appreciation
« Reply #3 on: October 15, 2012, 10:02:40 AM »
The yield is always better in less desirable areas, but many times that is due to increased repairs/collection costs and overall increased risk in stability of cash flow. 

I can get 15% cash on cash in the hood but only 4% in the burbs - I would like the 15% but have no desire to knock on doors to chase rent (or get shot).  Maybe if I was young, single, childless.

JJ

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Re: Yield or Appreciation
« Reply #4 on: October 16, 2012, 02:22:34 AM »
I don't know what the financials look like in the US, but there are quite a few overheads "per door" in Oz [insurance, local government rates, sewage connection fees, new tenant letting fees etc] which makes low rent per apartment on an n-plex a lot less attractive than the same total rent for a standalone house.  Make sure you look at all the costs - the net cash-flow may not be as good as it seems on the surface [speaking from hard-earned but thankfully not too expensive experience from my first n-plex].

But yes, gross cash-flow looks very nice on this deal...

Sparky

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Re: Yield or Appreciation
« Reply #5 on: October 22, 2012, 08:45:07 PM »
Can I ask where there are 115K 8 unit buildings in this world? Blows my mind on how low cost it is.

arebelspy

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Re: Yield or Appreciation
« Reply #6 on: October 22, 2012, 08:47:13 PM »
Rust belt.

War zones.
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grantmeaname

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Re: Yield or Appreciation
« Reply #7 on: October 25, 2012, 10:26:03 AM »
Suddenly the rust belt doesn't sound so bad, huh?

JJ

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Re: Yield or Appreciation
« Reply #8 on: October 25, 2012, 04:32:19 PM »
Of course, rust belt and war zones aren't mutually exclusive: http://www.amnation.com/vfr/archives/019459.html

Not a great incentive for an Aussie to invest over there...

nealashley

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Re: Yield or Appreciation
« Reply #9 on: October 28, 2012, 08:10:58 PM »
The property is located in Upstate, South Carolina.

In fact, the owner just dropped the price again. It is down to 105,000. I'm working on preapproval so I can move forward after looking at a few of the apartments.

A - Vacant -used as a storage unit (expensive unit if you ask me)
B - 1 year
C - since July
D - 5 years
E - since Sept
F - since July
G - 1 year
H - 1 year

The letters correspond to the units and how long a tenant has occupied that particular unit.

I also found out the owner has a quadplex a couple doors down listed at 59,000.
A - since july
B - since this month (Oct)
C - 3 years
D - 15 years

I've sent over a long list of questions to the seller and will keep you all updated.

I did find out the owner's wife has cancer and just has to much on his plate. The properties were originally listed at 189,000 and 105,000 respectively.


MooreBonds

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Re: Yield or Appreciation
« Reply #10 on: October 28, 2012, 09:49:30 PM »
Disclaimer: I have no experience in rental property.

A - Vacant -used as a storage unit (expensive unit if you ask me)

Make sure you go through that unit carefully. It could be that he's using the unit as storage because he isn't that motivated to rent it out, or doesn't need the money that badly....or, could be that there's something wrong w/ that unit that he didn't want to bother fixing up to make it rentable.


I also found out the owner has a quadplex a couple doors down listed at 59,000.

How do these units compare to the general area they're in for gross/net yields? How do those yields compare to an area that's just a little nicer?

Given how much the seller has dropped the prices, looks like he's wanting out. Given that they're right by each other, almost tempting to make an offer to buy both to take them off his hands.