All Forum Posts by: Andrew Choi

Remember, real estate is always local. Yes, apartments are, in many markets, overpriced, thanks to 4% interest rates. Too many people chasing too few of deals. It's hard to see cap rates going much lower from here since interest rates are probably at their bottom. Which market you are in matters: Job growth and population growth are two key factors for multifamily investors. Is your market growing in under>30 age group? Are there major employers hiring? How is wage growth doing...you can't increase rents if wages aren't going up. What is going on with apartment construction in that market? If there are a ton of apartments coming online in 2016 and 2017 in your market, I would be be using a higher vacancy rate in my projections. 

Of course, buying at the right price is still key. As is having a way to force appreciation going forward (through improvements, rent growth, vacancy control and expense control). You need to examine your expected Cash on Cash and total ROI over a 10-year hold and see if you are satisfied with those numbers, and be very conservative in your projections. What about selling price on the other end? If you are buying at a 7% or 6% cap rate right now, how does your overall rate of return look if you have to sell at a 9% cap rate in 5 years? 10 years?

I am being extra-conservative in my projections for things like rent growth and expense growth rates...rent typically keeps up only with GDP, which is growing at less than 2% a year. Try a 2% rent growth and 3% expense growth: Do your numbers STILL work? Even with a 9% selling cap rate? What if the vacancy rate is 15%?

I would also be wanting a loan that has no interest rate reset for 10 years, if possible...5 years isn't enough right now: What if your 5th year is like 2010? You also don't want to be overleveraged: Believe me, there is nothing like the security of having 25-30% equity in your property as a security blanket. What about seller financing...is it available?