Risk Buying Multi-Family During This Time?

Question

I have found a good opportunity for a 16 unit investment well priced. I’m conducting due diligence on the deal but with the current climate wonderful if there is additional risk I should consider? Are other folks still buying during this time? How are you approaching deals differently?

John Warren · Answer

@David Prince if it is in the right area then I would definitely pursue it. I have several properties in the Chicago suburbs and I am not overly concerned with rental collections. My tenants have stable jobs, which is why I chose these markets in the first place. I have been underwriting for 5% vacancy for years while seeing closer to 2-3% vacancy in real life. If I miss 5% of my rental collection for the year due to Corona virus, then it is what it is. I doubt this will actually happen though.

Hai Loc · Answer

I am not actively looking. I am getting criticized already by taking a look at a property with my fellow investor tomorrow during these times.. It's a flip property..

I cannot fathom to buy a leveraged property that relies on rental income.. You need to dig deeper and look at local market.. For example Vegas.. how are locals gonna survive with no tourist.. how will they pay rent and survive.. similar questions you need to ask in your market which appears to be Chicago.. btw did they ever start on the south shore project? I heard rumours like 5 years ago

Elbert D. · Answer

A 16 unit in a C class area...if the CAP rate is good. I’ll go for it if I were you. The market is about to shift to a buyers market.

David Prince · Answer

@Greg- great points. Thank you for the tips!

David Prince · Answer

@Erik Hatch it’s a class c, 98% occupancy, below market rents and close to military base. Waiting to hear back from the realtor on the pro forma.

Greg Dickerson · Answer

If it’s a good deal keep moving forward but make sure you can handle losing 50% of the income temporarily  if this situation continues. Verify economic occupancy and ask for disclosures of any rent abatement agreements or discussions. Add more time for financing as lenders are getting behind and make sure to discuss contract contingency and to add language to your force majuere cluase for this new situation.

Erik Hatch · Answer

What class of property?

Bjorn Ahlblad · Answer

@David Prince A 14 unit was offered for sale in our area Sunday it went under contract Tuesday. I am looking for something in that size but that particular property was not for me. Coronavirus is something that needs to be considered for sure; but it is temporary, at least in my opinion. I would be a buyer even given the current climate but I might tighten up on my criteria just a bit. It hopefully presents an opportunity to negotiate. All the best!

Todd Dexheimer · Answer

If it is truly a good deal, then yes, buy it. Look at the numbers, be cautious. This could blow over in a few weeks or go on for 12 months, but solid cash flowing multifamily is still a good buy, especially in good A or B areas.

Risk Buying Multi-Family During This Time?

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