7.5 Cap Rate Plus - Multifamily
For those of you looking for, or working with buyers seeking 7% Caps plus on multifamily assets, I have found that the bigger the development company seeking to divest of property, the higher the Caps that can be negotiated with them. Have an LOI accepted yesterday and contract pending for 272 units in a "A" property at a negotiated 8.5%Cap, initially offered by seller at a 6% Cap. I am looking and finding deals like this here in Florida.
[ Edited by JohnLocke on Date 06/17/2008 ]
Good job and good find. 8.5% is a very good cap for a 1st class (A) property. These caps above 9 usually indicate a little fix up is required to make money.
Im not a big time player like you, but i do have a question. How did you work out the Property Manager for this? Will you keep the same team/PM structure?
And if you dont mind sharing, whats the NOI for this property. How much did you put down (5%?). I am pondering buying and running an apt complex. But to quit my day job, i need at least 100k/yr (NOI). Thanks in advance.
Rodney
Good job and good find. 8.5% is a very good cap for a 1st class (A) property. These caps above 9 usually indicate a little fix up is required to make money. A - Look for condo conversion bulk buy out deals-you want to control the HOA so you need to acquire more than 50% of the total units - Property, has more than likely been through a complete redo and upgrade . in most cases could be considered new.
Im not a big time player like you, but i do have a question. How did you work out the Property Manager for this? Will you keep the same team/PM structure? - A - Condo converters and developers are often times not set up to be apartment rental operators - In the case mentioned, I sourced 4 different apartment management companies with experience operating bigger developments, submitted the current owners budgets and had them rework the numbers for max bottom line. They came back with savings of between $220K and %257K over the current budget...so yes..would be changing management.
And if you dont mind sharing, whats the NOI for this property. How much did you put down (5%?). I am pondering buying and running an apt complex. But to quit my day job, i need at least 100k/yr ( NOI). Thanks in advance.
Paid cash - NOI - a little under $2M a year
nullA - Condo converters and developers are often times not set up to be apartment rental operators - In the case mentioned, I sourced 4 different apartment management companies with experience operating bigger developments, submitted the current owners budgets and had them rework the numbers for max bottom line. They came back with savings of between $220K and %257KA - Look for condo conversion bulk buy out deals-you want to control the HOA so you need to acquire more than 50% of the total units - Property, has more than likely been through a complete redo and upgrade . in most cases could be considered new.
Thanks for the response.
A property with a $2 million NOI will cost me $12 million...and i dont have that kind of bank influence.
I can possibly get into a 3 mil doll apt complex. If i can NOI at 350k, i may jump at it. Less my interest expenses, i could make more than my current job. I would be a full time Apt. manager...but a well paid one!
A condo conversion is pretty difficult to locate and they usually come with a lot of legal baggage. You did very well to find and close on a profitable one. I hope your vacancy is above 90%. Thats pretty easy to do here in Los Angeles or New Orleans. Those are my markets!
Thanks for the info
Rodney
You mention "A" property, how is this distinguished what makes an "A" property and so forth....down the line.
Thanks in Advance!
An "A" property is really determined by Location, condition, tenants, etc. A High Traffic, Corner lot with a signalized intersection on a Major route with excellent visablity would be considered, as well as the tenant base if they are apartment rentals, or if its a residential/professional tenant, their "credit" would take into consideration. For example. a CVS is considered an A tenant because they are a national retailer and they credit rating via Wall Street is AAA, where a local mom and pop shop would be considered C or D.
hard/private money
equity partner
Can you call it a rehab and try an SBA CAPline
or FHA rehab loan?
Hard money is out of the ?. 12-13% will blow the cash flow out of the water. My thinking is how can I pitch it to the seller to make it adventageous enough to him to do the deal with me.
is it listed for sale?
He now as a property he wants to exhange into, so nothing creative will work. and yes, I do have it forsale
i would say just drip on him constantly while he still has the property...
Call several commercial brokers and ask them the Cap Rate for A, B and C class properties in the area. Call at least two and preferably 4 to 5 and average what they say. Ask them about the market, etc, etc.
Good Luck.
Thanks!
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