Good markets for multi-units

[Drew Cobb]

Hi Everyone! 

I'm researching where would be a good market for investing in a mid level ($1M to 1.5M) multi unit for the best return rates and stability. Ideally somewhere near Detroit, Los Angeles, or Charlotte NC, but I'm open to all suggestions and why.  LA is ridiculous right now and I'm 1031-ing money from an LA based property for this purchase. I've heard the "research triangle in NC is a good area?

We're also open to MHP's in this price range too, but from what I know loans are harder to get. We'll have approx $300K for a down.

[Ethan Vegas]

Great question @David Tipton,

For the same incremental improvement in NOI, you get a much higher increase in equity in a low Cap environment vs a high cap environment.

For example, a $50k NOI increase in a 3% area (Beverly Hills?) will yield an increase in value of $1.6MM vs a value yield of $300k for the same $50k NOI increase in a 15% Cap area (San Bernardino?).

Cap rate is essentially a measure of risk/reward & supply/demand.  If you own property in highly desired areas (demand) with low risk, supply is likely limited and investors are willing to pay a higher price for the same amount of return (reward). If your building is in a D neighborhood with high risk, there is likely to be a glut of available property and investors will pay less for the same relative return. 

Being an active property manager, I'm always managing to improve NOI even if only by small margins at a time. Being a landlord/manager means that small choices (good or bad) have large implications. The lower a Cap rate is, the more dramatic the implications.

Assuming that capital is not an issue (which of course it always is), the greatest increases in appreciation can be had with mismanaged buildings (NOI that can be easily improved) in high Cap Rate areas.

Hopefully this helps....