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Apartment Valuation Watch

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SteveO

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I am continuing to watch this trend. Not sure if it will lead to blood in the streets but it certainly has the potential.

It does not take much to make a trend. Construction has been going gang-busters for a number of years. If the job market does not pick up, there will be problems in the rental market eventually.
 

Antifragile

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@SteveO

Multifamily seems to be on fire. Most municipalities continue to want more rental and have various “goodies” offered to developers. Affordability problems did not subside and it seems more and more people rent (especially in urban centres).

You‘ve had a lot of experience in rental. What’s your read on the next 5-10 years?

What could support or disrupt the current trends?
 

SteveO

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Well let me start by saying I've been wrong more than once. Each miss adds to the experience though.

Interest rates are big. Not many commercial loans available that last more than 10 years. Some are only 5.

That is not really a problem if rents are rising. But, I've seen times where rent growth was flat or declining.

It is possible to get hit with the double whammy of high interest rates with lower income. In some cases loans will not be available for what you need. This could lead to foreclosure.

Rents and property values have been going up for a long time. Seems like record numbers to me. I don't have faith this will continue.

There are times that rents don't rise for years. Vacancies rise a little bit and it sets off a myriad of problems. When it becomes easy for a tenant to move, they often jump to the "2 month free" move- in specials. Sometimes it is so easy that they can just not pay rent and jump to the next one.

When you look at gross potential rent, you may assume a 5% rent loss due to vacancies. There are other losses to consider though. Bad debt (non-paying tenants) and loss to specials can be big ones.

If the market vacancy rate goes up to 10%, the other losses go up dramatically. At 5% you may not have any specials or much bad debt. At 10% you may have another 10% loss from those factors. Most renters know when it is a weak market and some know how to play the game.

Another factor that will play into vacancies is overbuilding. Too much product and not enough tenants.

Let's not forget about jobs. If employment softens, do will the rental market.

5 to 10 years is a lot of time and a lot can happen. I like to buy when the market is soft and people lose hope.
 

Antifragile

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Timing the market is almost impossible... but it sounds like you are pessimistic on the 5-10 years and would wait for a correction before buying. Am I reading your post correctly?
 

SteveO

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Not pessimistic over the next 5-10 years. Just waiting for a bit of a downturn. Don't know when that will take place. I thought the pandemic would trigger one but nothing yet.

After talking with you, seems that you have a great model already.
 

door123

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Not pessimistic over the next 5-10 years. Just waiting for a bit of a downturn. Don't know when that will take place. I thought the pandemic would trigger one but nothing yet.

After talking with you, seems that you have a great model already.
Funny that you say that. I'm actually buying my first multifamily 2-3 unit in the bay area with an FHA loan this winter. I found a couple that cashflow nicely...now reading what your saying makes me pause....at the same time I'm sick of paying $2,100 rents for some stupid apartment when I could be paying $800 as owner occupant.
 

SteveO

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@door123 Owner occupied has different quirks.

Tell us a bit about your evaluation. How much per unit are you allowing for monthly or yearly expenses? Break it down by insurance, taxes (property and muni), advertising, maintenance, capital improvements, utilities, etc... Also, are you going to self manage or use a management company?
 

door123

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@door123 Owner occupied has different quirks.

Tell us a bit about your evaluation. How much per unit are you allowing for monthly or yearly expenses? Break it down by insurance, taxes (property and muni), advertising, maintenance, capital improvements, utilities, etc... Also, are you going to self manage or use a management company?
Price is $470,000 Duplex using FHA loan
Monthly principal + interest
$1753
Monthly mortgage insurance premium
$319
Monthly property tax (est.)
$390
Monthly homeowners insurance (est.)
$117
Monthly Sewer Garbage
$150
Self-Manage
$0

Total Expense $2,729

Rent: 2x (1 bed 1 bath units )
$1500 + $1500 = $3,000

Positive cashflow $271


I could do cosmetic renovations, carpet, repaint cabinets, countertop, floors, would cost around $50k, but I'm not sure by how much that would increase the rents $100 or $200 per month?
 
Last edited:

thechosen1

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Price is $470,000 Duplex using FHA loan
Monthly principal + interest
$1753
Monthly mortgage insurance premium
$319
Monthly property tax (est.)
$390
Monthly homeowners insurance (est.)
$117
Monthly Sewer Garbage
$150
Self-Manage
$0

Total Expense $2,729

Rent: 2 (1 bed 1 bath units )
$1500 + $1500 $3,000

Positive cashflow $271

I could do cosmetic renovations, carpet, repaint cabinets, countertop, floors, would cost around $50k, but I'm not sure by how much that would increase the rents $100 or $200 per month?
Are you projecting both units rented at $1500?

If you're using an FHA loan, you must reside in one of those units at least for the first year.

That means your cash flow will be negative $1,229 ($271 - $1500 for your side)
 

JordanK

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If you are paying 2100 in rent wouldn't you be better off staying in the unit? Unless of course you plan to buy a second place after the year elapses.

Seems like you are reallyyyyy stretching the house hack strategy to fit your personal situation. Might not necessarily be a good idea in a top market.
 

door123

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If you are paying 2100 in rent wouldn't you be better off staying in the unit? Unless of course you plan to buy a second place after the year elapses.

Seems like you are reallyyyyy stretching the house hack strategy to fit your personal situation. Might not necessarily be a good idea in a top market.
Exactly, I thought I could the units for more, but looking at similar listings, $1500 seems to be the cap.
 

Sauce

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Albuquerque, NM
Speaking of Multifamily being on fire...

CBRE 1st Half of 2021 Multi Cap Rate Survey. Some pretty eye popping numbers on here.



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