What is the Magic Number for a Six Unit Property?

Question

Hi Everyone,

I keep watching this property, a flipped six unit apartment building in Arvada. The price just dropped but still is not making the cut when I run the numbers. I though it would be interesting to see what the community thinks the right price is for the property?  And what would you rent the units for? Also, I noticed a little red flag that may effect future profit? Do you see it or any other?

7700 W. 68th Avenue Arvada CO 80004. MLS # 3999671

Price $1,675,000.00

Assume 80/20 % Loan

Tax (Realist Tax) $4186 -2020

Jimmy Vasquez · Answer

I was just looking at multi-families around the Front Range.  Conclusion: The plexes on the MLS are overpriced for what you get in rent.  You can buy SFHs and make better cash flow.

Jimmy Vasquez · Answer

@Myres McDougal Great article and very insightful

Mike D'Arrigo · Answer

@Myres McDougal you haven't given enough information. Who is managing it and what are the fee's? Is gas and electric metered separately? How much is water, septic and sewer? How much is lawn care and snow removal. You can't overlook those expenses. What is the condition of the units and what kind of maintenance can you expect?

Dave E. · Answer

@Myres McDougal

This is considered a commercial property, so it’s value is based on its current NOI and cap rate. If you can figure out those two things, then you can calculate the actual value of the property and make a more informed offer.

Timothy Hero · Answer

Every market is different, but at that price, you're paying $279k/unit. I would only invest in a deal like this is I can get at least $2,100/unit for rent. I'm a cash flow guy, so my view may be different.

Frank Rodrigues · Answer

Wow... In my opinion and experience with multi's this is way overpriced! I have seen way better options in the Kansas City Market that perform much better for less. If you are interested in seeing the difference for a comparison PM me. I hope that helps and best of luck!

Myres McDougal · Answer

Hi @Jimmy Vasquez,

Also, Lon Welsh from YCRE shared this article today and I thought you would appreciate the content. I personally am in the market for more of the long haul on investment properties- flip and hold but it is still a great read for investors.

Home flippers are seeing the lowest return on investment in nearly a decade — but that still makes for tens of

thousands of dollars in returns, according to new data from national property database Attom Data solutions LLC.

The gross profit on a typical home flip — the different between the median sale price and the median price paid by

the investors —  rose to $67,000 in the second quarter of 2021, up 2.4% from the $65,400 in the first quarter of

2021 and up 3.1% over the $65,000 seen in the second quarter of 2020, according to Attom

But that heightened gross profit translated into a 33.5% return on investment compared to the original acquisition

price, down from 37.2% in the first quarter of 2021 and down from 40.6% during the second quarter of 2020.

That puts it at a level last seen since in first quarter of 2011, when the housing market had yet to fully recover from

the slump brought on by the Great Recession.

“Home flipping rebounded during the second quarter. But profits sure didn’t, as the typical home flip around the

country netted the smallest return on investment in a decade,” said Todd Teta, chief product officer at Attom.

“However, it’s not like home flipping has become a losing proposition. A 33% profit on a short-term investment

remained pretty decent, even after renovation and holding expenses. But with a few more periods like the second

quarter of this year, investors may need to reframe how they look at these deals.”

The drop in ROI comes from soaring home prices on both ends of the flip deal. The median price of homes flipped

in the second quarter of 2021 soared to an all-time high of $267,000, up 10.6% from the $241,400 in the first

quarter of 2021 and up 18.7% from the $225,000 seen a year later. But those price increases were not enough to

absorb the higher costs flippers had to pay to buy those homes in the first place, according to Attom.

Overall, the number of flips rose in the second quarter of 2021, with 79,733 single-family homes and

condominiums sold, or about 4.9% of all home sales – the first time the proportion of flips has increased in a year.

It is up from 3.5% of all sales seen in the first quarter of 2021, but down from 6.8% seen during the second quarter

of 2020 and below the levels seen over the last decade.

The metro areas with the highest share of flips as a total of sales included Savannah, Georgia, with flips accounting

for 9.5% of all home sales, and Fort Wayne, Indiana, with flips accounting for 9.3% of all home sales. Canton,

Ohio, flips totaled 9% of all home sales, according to Attom. But the metro areas with the biggest returns on

investment were Oklahoma City, with an ROI of 196.4%, Fargo, North Dakota, with an ROI of 185.7% and

Pittsburgh, with an ROI of 154.2%.

Meanwhile Gulfport, Mississippi, saw a 7.8% loss, while Corpus Christi, Texas saw just a 0.7% return, the lowest

among metro areas in Attom’s data.

The fresh report comes as the Covid-19-fueled housing market — with homes selling well above asking price —

may have reached its peak — at least according to recent data.

That doesn't mean housing prices are going to come down in the near future, and in many parts of the country the

housing market continues to remain red hot, but some national indicators are showing early signs of balancing,

according to Redfin Economist Taylor Marr.

There are other signs the market might be turning, with new home listings surpassing prepandemic levels earlier

in July, according to reporting by Ashley Fahey, real estate editor at The Business Journals.

Myres McDougal · Answer

Hi @Dave E.,

Below is a link to the BP cal. numbers I used. If the link doesn't work reach out and I will email it to you.

https://www.biggerpockets.com/...

Myres McDougal · Answer

Hi @Mike D'Arrigo,

Thanks for the input, agreed. When reviewing a multi-property for purchase you do need to consider those factors and many more. The purpose of the post was to get a general range for a price and to see if anyone would even be interested in a 1920's build. For me its a NO and a red flag even with the flipped units, the amount of due diligence on an older property like that is not worth it- considering in the same market you could purchase 2-3 cash flowing SFH (as a few responded)

Myres McDougal · Answer

Hi @Frank Rodrigues and @Timothy Hero,

Agreed, the price is too high. It has already dropped once and Winter is coming so buyers (even in this market) can have better negotiation options. The question is What is the Magic Number? Also even if you could get it at an OK price, would you? The potential of this investment is for at least a 15 year hold, gaining equity. The RED FLAG is after 15 years the building will be over 100 years old. Some newer investors don't see that build date and potentially make a bad investment not realizing the amount of Cap Ex new systems cost. Of course with good due diligence you can secure older properties. For me, I am trying to get into multifamily so I am checking out anything and everything on the market and asking as many questions as I can to help build my "knowing the numbers" power! Thank you both for the comments!

What is the Magic Number for a Six Unit Property?

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