All Forum Posts by: Zach Adams

@Zach Adams  If you really have no idea of market cap rates in So Cal, MF in great areas like west side Costa Mesa are down to about 1-3% and rougher areas like Murrieta and Lake Elsinore routinely trade in 5-6% caps.  Now that is market average.  People here will tell you there are much better deals to be had if you really look, distressed deals, etc.  And that is true if you are tied into the market or spending scores and scores of hours scouring and rejecting until the gem if found.  But the idea that you will find 10% deals in CA simply by changing your search from SD/OC/LA to Inland Empire is wishful thinking.  

Sorry I don't have any great tips but as much as I would love to participate in CA MF, I have stayed on sidelines because people are buying based on expected appreciation, not current cash flow.   Or they are getting to 10 cap using massive leverage and expectation of upside after rehab and re-positioning.  Too risky for me.

@Zach Adams

  I did look at the post above yours.. full explination

We are not seeing to many properties hitting the "2%" rule in areas of Cleveland that we would want to invest. Prices have been on a steady rise over the last year or so.

Generally in our neck of the woods we are seeing the following price points as the closest you can regularly get to the 2% rule. Of course there are outliers here and there but this is what one could expect to find relativity regularly. 

SFR that are renting for about $700/ month with an acquisition cost of $40k or more. 1.75%

Duplex that are renting for about $1,200/ month with an acquisition cost of $65k or more. 1.85%

In the suburbs we are seeing 

SFR that are renting for about $900/ month with an acquisition cost of $70k or more. 1.29%

Duplex that are renting for about $1,400/ month with an acquisition cost of $100k or more. 1.40%

@Jay Hinrichs, what is the GOZONE and how were you able to depreciate new construction over 5 years?  Inquiring minds want to know...

Best,

 - Chuck

@Eric Bilderback as much as I like Indianapolis, it's not a particularly good market for multi family. Most of the MF units are very old and in rough areas. I'd tread very carefully there.

@Zach Adams

 Have you read Dave Lindahl's book Emerging Markets?  Have you looked in Riverside or San Bernardino County?  Are you looking to stay in California or go out of state?

Why not look where NOI is more desirable at an 8% cap or less desirable at a 12% cap? What is your fixation with a 10% cap? Do you have any idea how hard it will be to find an area that has a 10% cap?

@Zach Adams

I have always maintained that the best choice for out of state owners is a class A property in a desirable area. 

We have out of state investors who are buying new construction here in the Tulsa area for around $155,000 that rent for roughly $1400.

They most likely won't be getting any phone calls in the near future about replacing roofs or sewage leaks. And I'll bet you their returns are very similar to those magical "2%" properties after expenses and long-term capex are figured in.

Why do you think the really big money guys - the hedge funds - buy class A properties in desirable areas? Answer: they believe it will produce the highest risk-adjusted rate of return on invested capital.

@Chris Simmons

Depends on how much below 100k he's willing to go haha. Good luck finding someone to manage them, though.

@Zach Adams

I would be very careful using a 2% or any kind of % rule to screen properties. Just because a property rents for 2% doesn't mean your returns will be any higher. It's important to evaluate income and projected expenses and capex in your evaluation. Can't tell you how many times I've spoken with investors that regret buying that $30,000 house that rents for $650 / mo.

I know a few investors that specialize and have done well with that type of property. They self-manage, are local, are very handy, and deal with a ton of problems on a daily basis. 

If you aren't local, you will likely pay a hefty price for someone to deal properly with those headaches, thus eating up most of the supposed extra return from a "2%" property.