Does it ever scare you to pick up an MFD/APT with 0 tenants?

Question

What type of feelings do you get when you see an MFD or Apt. complex that is for sale but currently has no tenants.
Do you ever get the feeling that you will not be able to find tenants, or is finding tenants usually not something that is impossible due to the amount of people who actually need to rent?

Do you try to only buy properties with tenants, if so, why?
Does it not matter to you, if so, why?

Thanks!

Account Closed · Answer

i never buy turnkey or performing rental properties, because the seller will expect a premium for the work he has done, and the income the property is producing...i buy super distressed multifamiles, where tenants need to be evicted and/or vacant properties...the trick is to know the rental demand and rates in the area...if you know that you can find tenants, it's not a big deal to go in and rehab for a few months...you'll end up getting better tenants with a new product anyways...i would be leary of doing this only in an area i wasn't comfortable in, so again, make sure you know the area like the back of your hand!  :)

Brian Levredge · Answer

It would depend on the reasons why the property is uninhabited. If the reasons are deferred maintenance or capex, then I'm not really concerned at all. Since a MFD's value is driven by the rent it is generating then you should be able to purchase at an even bigger discount. I would rather take the hit on the income loss on the front end, where I know I can quickly renovate and get a tenant in place at market rent then do get rents up over time. Of course, this also depends on the building size as well.

If the reason the property is empty has more to do with the surrounding area (high crime) then I'm more nervous since those are factors that are much harder to influence.

Joel Owens · Answer

Many times landlords have ran the properties for years and they are TIRED.Based on all the listings I have had in Multifamily and the stories they tell me I would pay the fee for a great property manager.

The benefit to owning a 50 unit or greater is usually you can land a 5% property management fee and the company will have a system in place versus a manager doing 1 house who is "winging it".

Saturation rate for the area (competition) for your properties product mix and amenities will be key as well as proximity to jobs,transit,restaurants, medical facilities,etc.

I don't worry that the property is vacant.Even in high crime areas it's all relative to price.I would not recommend buying in high crime areas for a novice.I have investor groups who do nothing but this and buy really cheap.

Eventually these nodes will be redeveloped and cleaned out if you buy right but you have to know the city plans and intricate workings of the area.

Don't listen to a seller telling you when occupied it rented for 600 a unit.Base your numbers off of what the market will be doing after your rehab.

If rents were at 600 a unit but based on data have declined 1 percent a month and rents now are at 480 then when rehabbed in another 4 months your lease up might be at 460.

Look at the big apartments to see what kind of specials and concessions they are running in the local area to lease up.

We could all go on forever with suggestions.You really need to work with someone who has intimate knowledge of the area you want to invest in.

When doing vacant or development deals the biggest mistake I see developers and investors make is to do rosy projections that 80% of the time do not go as planned.Plan for the worst but hope for the best.

Hope it helps.

Account Closed · Answer

i'd guess it's tough to manage a rehab on an apt building from long distance, and to get it leased up...

Account Closed · Answer

If the property is in good shape and a good location, you should be able to put tenants in there with out much problem.

Account Closed · Answer

Like Bryan I don't want a turnkey property.  A property with a high vacancy is a potential opportunity as long as you buy it right, do your due diligence and are able to market and manage the property well.

The last thing you want to do is buy the potential that many listing agents are likely to emphasize in this situation.  It is necessary to know what the value is negotiate based on the true value in the current condition.

Chris G. · Answer

Thanks guys. I live in Los Angeles and I don't really want to do anything here due to the high cost limiting the amount of deals I could do.
I guess its time to pick some other state&city and hope I picked a good location.

Does it ever scare you to pick up an MFD/APT with 0 tenants?

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