REO Section 8 Apartment Complex

[Brandon H.]

Need some input on the following deal:

Units: 1,2, & 3 bdrm townhouses (majority 2/3 bdrm)
Section 8 (renting under market price)
Occupancy: 80%
Price: $12,500 per door
Cap Rate: >10%

This is the first apartment complex I have looked at investing into. The complex is in an economically depressed area with higher vacancy than the national average. I also assume, based on year built, that there may be some deferred maintenance needed. What are your thoughts on this deal, what should I watch out for, what questions should I ask, and what is the max I should pay?

[Jon Holdman]

I think some real data might be useful.

According to the US Census Bureau, the rental vacancy rate for the third quarter of 2010 (most recent data available) for the Indianapolis MSA (metropolitan statistical area) is 15.9%. The raw data is in table 4 in the linked page. Nationwide average is 10.3%. So, Indianapolis is above the national average. Its rate is #13 out of 75 MSAs tracked by the Census Bureau.

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