cap rates vary with the type of property. Are you asking about a newer 500 unit apartment complex in the suburbs or a 1900s mansion converted to a five plex in the ghetto? What kind of condition is it in? etc. etc. etc.
cap rates vary with the type of property. Are you asking about a newer 500 unit apartment complex in the suburbs or a 1900s mansion converted to a five plex in the ghetto? What kind of condition is it in? etc. etc. etc.
It is a price per door and price per sft that makes TX properties attractive. If the high CAP is a solo-objective, one can find high CAP rate investment properties almost everywhere, even in the hottest market; the question though you should ask is what comes within the high CAP “package” as far as deferred maintenance, quality of tenants, Insurance and Tax rates go.
If you can tell us if you own a rental property elsewhere, what is your experience and what your objective is, the more specific answers would most likely follow.
The Cap rate indicates your rate of return, as such it is inherently essential that you consider it in your multifamily/commercial investment decision making process.
GRM – Gross Rent Multiplayer is the quickest but less accurate method, also commonly used.
IRR - Internal Rate of Return is rarely or not at all used among professionals for the Real Estate Investments evaluation because the investors have no way of predicting with certainty what the market is going to look alike in a year, leave alone five or ten. How you select the property depends on how long would you like to keep it, what is the level of pain you can endure during the length of your ownership and what your exit strategy is.
If you wan to migrate your inflated equity into more cash flow oriented market, TX may be a good choice. You can also consider AZ, New Mexico, Idaho, North and South Carolina, once you have the cash available and you are ready to invest out of state.
Generaly speaking, $200K- $300K should be enough for you to buy a nice $1mill to $1.2 mill property that would certainly cash flow with no major headache. Or you can partner with someone withmore experience in your aria of interest and go bigger with less risk involeved.
Would a CA broker who specializes in TX and other out of state multifamily properties be something you would consider helpful?
J,
CAP rates depend on the deal- age, location, size, blah blah blah.
If you are looking at a suburban deal in those markets I would try to shoot for 8% CAP on real numbers if the deal is over 40 units and 9-9.5% if the deal is small like the 4-20 unit range. Those would be my personal target ranges after having done quite a few deals in the Dallas area in the last 5 years as well as looking at thousands in Texas over the last 18 months or so.
You could add in maid service, and market to the upscale student.
Or you could take a look at marketing to the mentally challenged. These kind of units normally have staff on site 24/hrs a day. Very little damage to your unit, as the staff is always helping to clean up the unit.
We had one unit (SFH) and I would do it again in a heartbeat.
We have owned and rented out both 3 bedroom and 1 bedroom units. Currently the 3 bedroom units are for sale! I will never buy another rental property that will accommodate extended families. The wear and tear, the constant hassles - not worth the effort to me.
We have single folks living in our 1 bedrooms and it has worked out wonderfully. Takes us less than 7 days to find a tenant when one comes vacant.
And to minimize the turnover, you can also offer incentives such as half month free rent if they sign a new 1 year lease, which may be cheaper then advertisement, cleanup and re-paint. [ Edited by REOCON on Date 07/01/2006 ]
I have seen deals that looked good on paper based on the price per unit but when it got down to it the unit mix of 80% one bedrooms made the deals numbers not work for various reasons. These were all bills paid properties and that changes the mix a bit as well. I have also seen a deal with 90% one bedroom units where the neighborhood was less of a singles type area now twenty years after the deal was built and it had higher vacancy by 10% than any of the properties around it for more than a year when I was looking at the deal. It was running at around 80% occupied. There are demographic issues I guess as well.
I think it makes a bigger difference if you have 60 plus units vs. a 20 unit or less deal. By shear force of effort and personality you can lease and keep 20 units full no matter if they are all one type or not, at a certain number of units the market starts to affect you more I think.
It is always more profitable to keep a tenant than to do a make ready and find a new one no matter what type of unit it is. That type of renewal concession is highly recommended. I also use incentives such as new ceiling fans, replacing appliances that might have to be replaced for a new tenant anyway, re paint, replace tile that will need it anyway, etc.
I do feel that higher turnover on one bedroom units leads to higher expenses overall for properties with a large percentage of them. Maybe that can be broken down to higher expenses per square foot if that is a measure that you analyze for a better apples to apples comparison point.
Even though there might be less damage in an apartment left vacant by a single in a one bedroom, the fact remains that if the turnover is happening at a higher rate, there is no rent on that unit for at least a month after a move-out in most cases and you have to do some work to it in order to get it ready- carpet cleaning, touch-up paint, cleaning service, etc. so it is a double whammy with higher turnover- less revenue and higher expenses.
On the expense side I would look at that operating expense column for the following
Property taxes
repairs, plumbers, electricians, HVAC repairs, etc
landscape maintenance
marketing expenses to rent vacant units
city fees for rental properties if any
just think of your house and what you cut checks for during the year, both recurring and one time expenses that come up and you will have your list of possibles for that category to start asking the owner about.
You have to copy the whole thread.....Currently CA has 36M, projected to be 46.5M by 2030...only Hawaii will have more expensive homes...I think it will be higher unless immigration reform happens to reduce the influx.
more than 6% less than 15%
Right. That really narrowed it down.
Jon
cap rates vary with the type of property. Are you asking about a newer 500 unit apartment complex in the suburbs or a 1900s mansion converted to a five plex in the ghetto? What kind of condition is it in? etc. etc. etc.
cap rates vary with the type of property. Are you asking about a newer 500 unit apartment complex in the suburbs or a 1900s mansion converted to a five plex in the ghetto? What kind of condition is it in? etc. etc. etc.
8-10 unit in suburbds.
Thanks,
Jon
It is a price per door and price per sft that makes TX properties attractive. If the high CAP is a solo-objective, one can find high CAP rate investment properties almost everywhere, even in the hottest market; the question though you should ask is what comes within the high CAP “package” as far as deferred maintenance, quality of tenants, Insurance and Tax rates go.
If you can tell us if you own a rental property elsewhere, what is your experience and what your objective is, the more specific answers would most likely follow.
This topic may also be helpfull:
http://www.thecreativeinvestor.com/commercial/ViewTopic55504-31.html[ Edited by REOCON on Date 06/15/2006 ]
John,
The Cap rate indicates your rate of return, as such it is inherently essential that you consider it in your multifamily/commercial investment decision making process.
GRM – Gross Rent Multiplayer is the quickest but less accurate method, also commonly used.
IRR - Internal Rate of Return is rarely or not at all used among professionals for the Real Estate Investments evaluation because the investors have no way of predicting with certainty what the market is going to look alike in a year, leave alone five or ten. How you select the property depends on how long would you like to keep it, what is the level of pain you can endure during the length of your ownership and what your exit strategy is.
If you wan to migrate your inflated equity into more cash flow oriented market, TX may be a good choice. You can also consider AZ, New Mexico, Idaho, North and South Carolina, once you have the cash available and you are ready to invest out of state.
Generaly speaking, $200K- $300K should be enough for you to buy a nice $1mill to $1.2 mill property that would certainly cash flow with no major headache. Or you can partner with someone withmore experience in your aria of interest and go bigger with less risk involeved.
Would a CA broker who specializes in TX and other out of state multifamily properties be something you would consider helpful?
[ Edited by REOCON on Date 06/16/2006 ]
REOCON,
This would definitely be helpful.
Contact me.
[ Edited by ypochris on Date 06/17/2006 ]
J,
CAP rates depend on the deal- age, location, size, blah blah blah.
If you are looking at a suburban deal in those markets I would try to shoot for 8% CAP on real numbers if the deal is over 40 units and 9-9.5% if the deal is small like the 4-20 unit range. Those would be my personal target ranges after having done quite a few deals in the Dallas area in the last 5 years as well as looking at thousands in Texas over the last 18 months or so.
You could add in maid service, and market to the upscale student.
Or you could take a look at marketing to the mentally challenged. These kind of units normally have staff on site 24/hrs a day. Very little damage to your unit, as the staff is always helping to clean up the unit.
We had one unit (SFH) and I would do it again in a heartbeat.
We have owned and rented out both 3 bedroom and 1 bedroom units. Currently the 3 bedroom units are for sale! I will never buy another rental property that will accommodate extended families. The wear and tear, the constant hassles - not worth the effort to me.
We have single folks living in our 1 bedrooms and it has worked out wonderfully. Takes us less than 7 days to find a tenant when one comes vacant.
And to minimize the turnover, you can also offer incentives such as half month free rent if they sign a new 1 year lease, which may be cheaper then advertisement, cleanup and re-paint. [ Edited by REOCON on Date 07/01/2006 ]
Points taken on the one bedroom players here.
I have seen deals that looked good on paper based on the price per unit but when it got down to it the unit mix of 80% one bedrooms made the deals numbers not work for various reasons. These were all bills paid properties and that changes the mix a bit as well. I have also seen a deal with 90% one bedroom units where the neighborhood was less of a singles type area now twenty years after the deal was built and it had higher vacancy by 10% than any of the properties around it for more than a year when I was looking at the deal. It was running at around 80% occupied. There are demographic issues I guess as well.
I think it makes a bigger difference if you have 60 plus units vs. a 20 unit or less deal. By shear force of effort and personality you can lease and keep 20 units full no matter if they are all one type or not, at a certain number of units the market starts to affect you more I think.
It is always more profitable to keep a tenant than to do a make ready and find a new one no matter what type of unit it is. That type of renewal concession is highly recommended. I also use incentives such as new ceiling fans, replacing appliances that might have to be replaced for a new tenant anyway, re paint, replace tile that will need it anyway, etc.
I do feel that higher turnover on one bedroom units leads to higher expenses overall for properties with a large percentage of them. Maybe that can be broken down to higher expenses per square foot if that is a measure that you analyze for a better apples to apples comparison point.
Even though there might be less damage in an apartment left vacant by a single in a one bedroom, the fact remains that if the turnover is happening at a higher rate, there is no rent on that unit for at least a month after a move-out in most cases and you have to do some work to it in order to get it ready- carpet cleaning, touch-up paint, cleaning service, etc. so it is a double whammy with higher turnover- less revenue and higher expenses.
Are you going to lever this property? If so will you be comfortably service the debt?
On the expense side I would look at that operating expense column for the following
Property taxes
repairs, plumbers, electricians, HVAC repairs, etc
landscape maintenance
marketing expenses to rent vacant units
city fees for rental properties if any
just think of your house and what you cut checks for during the year, both recurring and one time expenses that come up and you will have your list of possibles for that category to start asking the owner about.
Hope that helps, good luck with the deal.
Dallas_Apt_Investor,
You are completely correct. I wrote NOI when I meant cash flow.
In his case I was trying to get down to how much money would flow and whether it would be towards him or away from him.
[addsig]
what chart??
Hello?
You have to copy the whole thread.....Currently CA has 36M, projected to be 46.5M by 2030...only Hawaii will have more expensive homes...I think it will be higher unless immigration reform happens to reduce the influx.
I think they were including DC, not Puerto Rico.
[addsig]