I have an opportunity to buy a 4 plex unit for $47,000 in a c class area. The rehab will cost around 35,000 to complete. This same property sold for $185,000 a couple years ago. The real estate agent tried to pull some recent comps but they didn’t have any. So She had to pull comps that were 10 to 15 miles away. This seems to be good deal but I’m concern because their is some new apartments being built on the next street and with the units being new I’m wondering if I would have a problem renting my units. I would like to get some opinions from some experience investors on what you would do.
First of all, knowing what the property sold for a few years ago is not going to do you much good. You absolutely have to get some comps that are more recent. If there are no fourplexes, then maybe there are some other small unit type properties that have sold. The real estate industry sometimes takes the idea of comps a little too far. For instance, your prospective tenant may well look at things like triplexes, 8 unit buildings, duplexes, etc. Afterall, he is just looking for an apartment for rent. Does he really care if it just a fourplex? I doubt it. So I would see what other income type properties may have sold. Look at what the cost per unit is. And look at what the unit rented for. I’m just as interested in “rental comps” as I am building comps. And that really dovetails in to your concern about those new buildings making it hard to rent. You are not going to be able to compete based on amenities chances are. But you can compete based on the rent if you can rent low enough.
Other things that I would be concerned about is the size of your rehab, where you get the money, how you pull the money out, what your return on equity is, etc etc. You haven’t given many details.
In the final analysis, you absolutely have to develop some comps for yourself, both building and rental comps.
Ben
forget the comps
What will they rent for, vacancy rate issues, how bad is the area(will you feel safe to go there to collect the rent).
Based on a $82K investment, what is the return and future exit strategy.
$400-600 per month rent is about a gross 2-3% per month return. Excluding the location issues it sounds very good. If they are building new apartments, then that should only help your position.