All Forum Posts by: Jordan T.

Hi Linda,

I've purchased property packages in Durham before.  Please feel free to message me if you are still interested in selling.

Thanks!

Did you ever find an answer to this?  I think the best solution is to call a commercial bank.  If there is no deferred maintenance and the properties are in good condition, you should be able to get 25 year amortization and a 5 year term from several different area lenders.  Feel free to PM me for more information and the lenders I've used.

It's pretty hot.  Cap rates are really compressed here and value-add investors are paying high prices for marginal properties at this point, but compared to the tier 1 cities we still have higher yields.  Cap rates for stabilized C assets are in the 6-7% range, and value add opportunities are trading at lower cap rates because of the expected rent bumps.

Thanks @Dan Handford

There was an awesome article in the Charlotte Observer (see the link below) about the current building boom in Charlotte and how it compares to the last massive building period in the early 1970's - including a discussion of some of the complexes that were built then and how they look today.

http://www.charlotteobserver.com/news/local/articl...

Takeaways:

- Trendy apartments go out of fashion, and will offer frequent opportunities for renovation.

- Despite falling from a class A  to class C level of community, the rent growth over the past 45 years in these complexes was 3% per year on average.

- Today's B and C class apartment complexes generally started as class A apartments decades ago - that's where the best returns are for developers.

- Unit mix is important - having most or all 1 bedroom units limits the customer base and increases turnover.

- Real estate is forgiving - as long as you keep vacancy down and don't let deferred maintenance pile up, the properties will do OK.  Though the best returns obviously come from keeping the unit conditions fresh and modern.

Redfin is more user friendly and easier to use and sort. Zillow loads pages slower and gets bogged down, but is better for seeing rentals and helping you separate FSBO and regular listings. Trulia has a somewhat useful crime map function.

Depending on age and condition of the property, I usually estimate $400/yr per door in capex, and $1200 for repairs.  That capex figure can come down a bit if updates and maintenance have been kept up really well.

That looks like a solid deal...I'd suggest taking it up to 10% vacancy to be more conservative.  It'll depend on how aggressive that manager is on renting out vacancies.  Is that a flat roof?  I'm not sure how much that would increase the capex over time.  

For loans, I'd suggest calling around to a bunch of the local community and regional banks, asking to speak to their commercial loan officer, and writing down each of their options. They'll give you a ballpark figure if you describe your deal and tell them your credit score is high 700's or above...below that it can affect things a little. Generally a lot of places will give you a 5yr term, 20yr amortization, with a rate around 5%, and origination fees of about 1%. You're looking for the banks that will give you 80% LTV instead of 75%, and also looking for the very rare bank that might offer 25yr amortization instead of 15 or 20yrs. I called 30+ banks before getting commercial loans in the past 6 months. Probably 10-15 offered 80% LTV, while only 2 offered a 25yr amortization.

One thing I'd note is that 1 bedrooms have higher turnover than others.  If it takes you a week or two to do carpet and paint at a turnover, and then 2-4 more weeks to rent it out, you're probably looking at 8-10% vacancy over time, assuming no one ever quits paying or has to be evicted.  2 bedroom units can be a bit easier to rent because they can appeal to single people all the way up to small families.

Hi Russ - for vacancy, you'll measure it based on the % of total rents.  So if 1 of the 8 units is vacant for the whole year, that's 12.5% vacancy.  I have a hard time using less than 10% vacancy.  Fixing a unit up and getting it re-rented can take some time, and the rare eviction can be a long-lasting process.  For repairs and capex, you were fairly close the first time around, with 10% and 5% respectively usually being pretty good estimates depending on the age and condition of the building.