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Updated almost 7 years ago on . Most recent reply

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Erich Rasch
  • Rental Property Investor
  • Fenton, MI
19
Votes |
14
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Prospective Deal Dependent on Rent Raise

Erich Rasch
  • Rental Property Investor
  • Fenton, MI
Posted

I am currently looking at purchasing a 24-unit apartment complex with a business partner. I would like some feedback on our strategy to raise rental rates since this property is only a deal for us if we can successfully raise the rents to market value. 

I'll preface that our goal is to pay down the loan on this property within 6 years, so we desire to pay more than the minimum loan payment each month. The current owner has the rental rates at $440 on average per unit and the market rate is around $600. If we purchased this property, it would cash flow ~$100 per unit per month at the current rate of $440 with the minimum loan payment. Since we aren't satisfied with this net income while not paying down the loan that quickly, we plan to raise rent three times over a 1.5 year period to get rents up to $575-600 (market value). At $600 per unit per month while paying the higher loan payments to pay it off within 6 years, each unit would cash flow $140 per unit per month for the 4.5 years after the last rent raise. After the loan is paid off in 6 years, each unit will cash flow ~$300 per unit per month.

Is it unwise to rely on raising rents to market value in order to make it a deal that satisfies our acceptance criteria? Any feedback on this strategy/situation would be greatly appreciated!

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Mike Dymski
#5 Investor Mindset Contributor
  • Investor
  • Greenville, SC
13,015
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Mike Dymski
#5 Investor Mindset Contributor
  • Investor
  • Greenville, SC
Replied

Many investors are okay paying a little more than market based on the in-place NOI if there is a big value add but the seller should not be compensated for all of your work in raising rents and re-positioning the property.

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