Originally posted by @Eric Martin:
Originally posted by @Michael Tempel:
I agree from a simple point of view based on cap rates....the A makes the most sense. If you can buy a run down property in a good area and turn it into a B+, it is amazing how much value you can create that isn't usually possible with a class A.
All of our properties with the exception of one are class C's that are renovated. If curious you can see some examples at www.NexusApartmentLiving.com - basically very reasonable prices were paid for the properties usually 20,000 a unit less than other similar properties (that is really where you make your money) and on average we did about 10,000 or less per unit in renovations adding new flooring, granite countertops, new cabinets, stainless steel appliances and of course other common area upgrades based on the property. It takes time and effort, but is amazing how much the value and monthly increases after the renovations are completed.
Quick example...if you pay a total of 50,000 a unit for a class C and have better finishes (after renovation) in a good area than an A class property bought for 110,000, imagine how much more that class A has to produce in rent and how much more rent the class C can now charge with better finishes without owing and extra 60,000 per unit in debt.
Let's first say newbie here but not in life. I agree the example works if you are in a class B area getting a deal on a current class C property, bringing it up to a class A or B property after renovations.
Do you see this working out in a class C area though? Is it worth the investment to go granite, hardwoods etc. in a C area? If you are able to get upgrades done, keep rents down as too not out price the market, it would work yes? Guess what I am saying is I don't think a renter would pay class A or B prices to live in a class C area, no matter the quality of the place.
Again newbie thinking out loud here. good read thank @Michael Tempel and everyone else. I'll be checking out your site Michael to see what you have done.
You are correct. Basically the ideal scenario is to buy a class C building in a A or B location. I really stay away from any area I do not feel safe myself or consider putting one of our managers in danger. With that being said, I tend to stay away from a C location even when the price is amazing low. The only time I would consider a C location is if there is a development coming into the area that could bring it up to a B location.
One property we did that is a perfect example of a C class property in a B...and improving area (development etc.) is the Bottineau On the River in a growing area of NE Minneapolis. www.TheBottineau.com.
I actually just had one of groups we work put together the performance on this property, here is the breakdown below:
Bottineau on the River, 2219 Marshall St. NE, Minneapolis MN 55418 - 35% ROE 12 unit building acquired in December 2012
Total investment: $720,000 (purchase + renovation)
100% occupied at time of purchase
Post renovation rents are 30%+ higher than prior levels
The Manager returned 62% of initial equity to investors within the first 18 months
The Bottineau posted a 35% Return on Equity (ROE) in 2014 from rents alone (does not include additional unrealized capital gains)
