Buying a fourplex when 2 lots of luxury condo are in construction

[Jay Truong]

I am looking at a rental fourplex (4 units of 1bed/1bath) in the Tempe Town Lake area (AZ). This is a very hot area because it is nearby a lake lined up with professional buildings and the Arizona State University campus.

Cap rate is 6.5%. This fourplex was just remodeled and price is average in the area ($975/unit).

However, as I walk around the area, there are 2 lots of luxury condos (30 units) and luxury apartment (40 units) being in construction and might be finished in 2 years.

What will happen to the market once these luxury complexes are completed? Would they bring in more competition?

[Doug McVinua]

@Jay Truong Jay, those condos should add value to that unit in the long run. The construction will be a negative just due to the noise and the mess. Once completed they will be competition to your building but most likely at a much higher rate which will actually make your units attractive and allow you to raise the rents some.

Of course as you already know that area is exploding with growth and demand. The ASU demand has increased as has the employment sector along the lake exploding.

Will that land your building on eventually be used other than housing or newer housing? It's possible they could want this parcel in the future.