REAL ESTATE Random Apartment Questions

[yveskleinsky]

I had some random apartment related questions that were floating around in my head after reading How to Buy and Sell Apartment Buildings, and I'm just curious as to how apartment investors handle these issues.

Here they are:

1. Do you look for or avoid apartments with clubhouses/laundry rooms/pools?

2. How do you determine the difference between a lump of coal and a diamond in the rough? ...I am guessing that what one investor would see as a problem, another would see as an opportunity- and where do you draw the line? (Ex. Foundational issues would be a deal killer, but anything outside of that would be a go.)

3. Would you prefer a class A apartment complex with a low vacancy over a class C with a high vacancy- if the cashflow potential was greater on the class C, but repairs were unknown?

4. How do you really determine repair costs? There is so much upside to riding the economy of scale, but it seems the downside can be just as brutal...if you're off by $200 a door, then it can be a game over pretty quick! How do you tighten up estimates?

5. When verifying the numbers, how do you figure if there is any deferred maintenance?

6. Do you go into a complex and gut all the iffy appliances and AC units, or wait for them to go out and replace them as needed?

Just wondering.

 

[SteveO]

1. Do you look for or avoid apartments with clubhouses/laundry rooms/pools?

It depends on the size of the property and the financials. I like to have all of these items. All of my properties have pools and laundry facilities, and most have club houses. Access to laundry faclities or washer/dryer hookups are a must. Pools are nice but only worth the maintenance if the property size supports it.

2. How do you determine the difference between a lump of coal and a diamond in the rough? ...I am guessing that what one investor would see as a problem, another would see as an opportunity- and where do you draw the line? (Ex. Foundational issues would be a deal killer, but anything outside of that would be a go.)

I personally do not like too much repair. The real diamond in the rough is going to be a property with a manager that does not know how to market, lease, maintain resident relations, or understand why they are having problems financially.

3. Would you prefer a class A apartment complex with a low vacancy over a class C with a high vacancy- if the cashflow potential was greater on the class C, but repairs were unknown?

Depends on the price. It is likely that the "C" with high vacancy will present a lot more opportunity than the alternative.

Repairs are not unknown. You have an inspection period to determine what repairs need to be done. I estimate them myself based on experience and call for quotes when I don't know.

4. How do you really determine repair costs? There is so much upside to riding the economy of scale, but it seems the downside can be just as brutal...if you're off by $200 a door, then it can be a game over pretty quick! How do you tighten up estimates?

I have had some major repairs come up that were unexpected and they hurt. You can minimize this by doing a good job on your initial inspection. You do need some ability to handle any unexpected major repairs if they present themselves.

5. When verifying the numbers, how do you figure if there is any deferred maintenance?

You will need to have a due diligence period and have the inspection completed in this time.

6. Do you go into a complex and gut all the iffy appliances and AC units, or wait for them to go out and replace them as needed?

I target $250 per unit, per year in the budget to handle these types of replacements. It is built into the financials. If the appliances are on their last leg, I will negotiate a repair credit with the seller if possible.