Is this a good deal? - Posted by Frank

Posted by PBoone on July 05, 2001 at 17:56:35:

On your objectives, 9 Cap property can be purchased all day long, every day of the week. What is it about this particular property that is of interest out of the other thousands out there?
We will not look at anything less than potential 12 Cap (from our own calcualtions,knowing the market well), why bother with anything else.
Your logic is good

Is this a good deal? - Posted by Frank

Posted by Frank on July 05, 2001 at 17:25:57:

I found a fourplex property with a cap rate of 9.2%. Assume everything the seller provide is good. I am planning to keep it for 3 years. However, it is one of the buildings among other same ones. Even I fix/refurbish it, I don’t think I can increase the rent more than 4% per year. Does this keep my property value at 4% increase annually after three years? If a buyer is looking for a cap rate of 9.0%+ property, the sale price of the building depends really on how much the rent will be. Even the realtor told me the average property value increase 8% per year, without raising the rent 8% per year, I don’t think this will be a good investment. Is my logic sound? I would truly appreciate your input.


Re: Is this a good deal? - Posted by Ronald * Starr

Posted by Ronald * Starr on July 05, 2001 at 21:56:43:


I don’t like your approach. It seems to me that there are usually two investment approaches that are good: quick resale at a profit, or holding for the long term as rentals. The only time it makes sense to me to plan to “keep it for 3 years,” is if you bought in an extreme local recession and you have a lot of confidence that the property values will shoot up before three years is out. And I’m not sure you can have that kind of confidence.

What rational do you have for a three-year hold? Does not make sense to me. The transaction costs of buying real estate are often about 3 or 6 % of the purchase price. And when you sell, if you use a real estate agent, you are looking at 6% or 7% off the top to the broker.

Unless you have extremely high appreciation during those three years, you will likely lose money. Almost certainly you WILL NOT make money, and you will be working for…what? Nothing? You like doing that?

I vote no on your investment approach

Good Investing, Not BadRon Starr*