Maybe… maybe not… good deal - Posted by JT-IN
Posted by JT-IN on January 07, 2004 at 18:42:45:
First off, I am in Cincy, so I know the market fairly well… What you describe might be a decent deal… or could be not that great… The factors that would determine this would be … 1) Expenses, or what is left after expenses; 2) Location… it is likely inner city property; 3) Condition… Newly remodeled sounds good, but are the mechanicals good, or will you be spending $$$ on major issues outside of the cosmetics that you mentioned…?
What you have described is an investment that has a CAP rate of about 12… meaning that it is going to return 12% per annum, net cash flow, based on some educated assumptions; (40% expense ratio of gross income… this can and will vary). Obviously if the expenses were 50%, then the yield on the investment goes down and the desirability goes with it… 50% expense ratio is not out of the quyestion, if things like heat are being paid by landlord… so you must know exact expenses, not estimates.
Depending upon the location of the property, and the management intensity of the property, (greater management demand with low-end tenants, and lessor demand if it the property can attract a better grade of tenant), then this offering is just about average, of what can be bought in the marketplace, unless the management intensity is low… My guess is… that it isn’t.
The conservative Bank Appraisal theory isn’t one that I invest by… I would imagine that I could shoot holes in the appraisal large enough to drive a truck through… Just my guess here…
If you care to email me since I am local, I would be happy to offer you more specific advice on this property. These types of investments are not what I usually purchase… One last thing for thought here… In a recent conversation with several Bankers that I deal with, at two different institutions, I asked what they were experiencing with their personal portfolio of loan problems…? Both their answers were almost identical… “The only folks who are in trouble are thos with multifamily properties…”
Have you noticed all the “For Rent” signs up around town…? This may be part of the reasont that the units are for sale to begin with… if not specific to these units now, maybe they are spotting the trend… MF’s are the last thing that I would be gearing toward in this market… and I am speaking about Cincy area.
Just the way that I view things…