I’m looking into purchasing an Apartment Complex on a large college campus. I’m new to this, so I’m probably overlooking a few details and I have a number of questions. One of which is this: What is a good way to judge the value of the property I am buying?
It’s tricky because college kids don’t want to live in dorms, so they rent houses and apartments…making a piece of real estate double in value (if not more). There are houses that I wouldn’t pay $80k for that have an asking price of $250k and up!
This clouds my mind and makes it hard for me to judge a bigger piece of real estate…an apartment complex. Does anyone have any tips on how to questimate the value of an apartment complex in this type of situation? What questions should I be asking? Any tips or info would be appreciated. Thanks
What state are you in? What condition is the property in? Do you know how many units are in the apartment complex? Are you going to put any money into the project to increase its value? Do you have 10% down? WHat’s your credit score? Will you be purchasing for the first time as an investor? What’s your loan payoff strategy? What is your estimated time duration for this project?
like Keith said, it all about income and a property like that shold be CASH POSITIVE. if its not, then you need to probably move on.
next you need to ask to see ACTUAL operating expense for several years. this should be easy for the owner to produce since it can be taken straight off their tax returns. Beware if you get back numbers with one significant digit (i.e. repairs were $3000; I want to see that they were $2781.). If you are experienced then maybe you can make you own judgement of what the expenses should be.
likewise do not be fooled by “project” or proforma gross income statements. What was the ACTUAL rent collect last yr. (or last month)
Also, sellers like to tell you rents are under-market. This is great (if it is really true); however, raising rents is pain in the butt as it ALWAYS makes tenants unhappy and creates the possibility turnover. If you have to do the “dirty work” (raising the rent) then you should get the rewards of increase positive cash flow (not just getting to break even). Finally, you know this statement is bogus if they have (or have had) extended vacancies in the complex.
finally look for defer maintanence. some landlords are lazy and/or cheap and don’t put money into their properties. this is OK, but it means you need to bargin harder on the price and make sure you are producing adquete income to address these issue. Another tactic is that if you get the proprty at a great deal, then you can afford to put $10k into upgrades and repairs followed by raising the rents (I have done this several times with good success). However, like previously stated YOU shoudl reap the reward for this effort/risk; not the seller (by way of a higher selling pricing).
In summary, buy the property based upon Today’s finanacial and actual condition. To reach some improved “could-be” state requires time/money/effort and the assumption risk on your part (not the seller).