Posted by Ed Garcia on December 18, 1999 at 12:35:24:
Mark,
Unit Mix is extremely important.
The best way to know if your unit mix will work, is to survey the area.
For example, if you’re near a college, then studios or bachelor units are marketable.
But in your case you gave me the answer when you said everybody wants 2 bds.
Obviously 2bs are hot in your area. Also 2bds will usually have less turn over than
studios. There is definitely a cost for turn over. Not only will you have more vacancy time,
but more maintenance and clean up per unit.
So now you have to be careful and not be blinded by price.
Key words here: Supply and Demand.
I, like you, look for attractive cap rates. But then I have to weight out my risk for my
reward. I research the history of the building, and the area. Look at the expenses and
vacancy history of the building. If they are high, and you still have the cap rate you desire, OK.
If the seller does not want to provide you with this information, then WALK.
Important: Never think you can do a better job of managing a building then the previous owner.
When you hear the words Poor Management, you must be ware.
That term is a catch all for problems.
Ed Garcia