heres my problem, I am looking to invest in small apartment complex 4 or more units, my question is if a complex has 10 units and only 4 are rented now, but the other are ready to rent, how would you figure the cash flow?
would you use the 4 units that are rented out if so this will always give a negative cash flow. if you base it on the pottential of 10 units being rented and you budget for 10% vacancy rate you could almost always have a good cash flow. thanks in advance
I love this site!!!
islander,
You need to HONESTLY assess why the occupancy is at 40%. Something is keeping 6/10 of the apartments vacant, such as:
Is the property in a bad area?
Is the property inhabited by @$$holes?
Is the property so run down that no one wants to live there?
Is the rent set too high for local rental market conditions?
Is the owner/manager just plain too lazy to get new renters?
Then, you need to decide if this is something that you can remedy. Within this decision, you have to decide if it is economically feasible to get the occupany rate up to AT LEAST 90%…perhaps all of the units need rehab. If this is the case, you have to make a risk/reward assessment as to whether it is worth it. If you can’t buy it with enough room in the deal to afford fixing WHATEVER is broken, it’s not worth it – don’t buy it!
With all buy and hold properties CASHFLOW IS KING!!! You must figure the cashflow on occupied units and deal accordingly. If the owner says “Well, with 100% occupancy, the cashflow would be blah, blah, blah…”, then ask him why the occupancy under his management is at 40%.
My 2 cents…
Keith
I thought thats how you would figure the cash flow and thanks for the reply.
islander,
It is highly likely that the property is just being mismanaged. Don’t dsespair! If this is the case, it give you negotiating leverage because the owner could be a serious “don’t want-er”! How are the vacancy rates in your area overall? Have you seen the property?
Keith
I beleive the property is mis managed, all units are 3 bdr and here on the island they are in great demand. rents are right at the norm, 735 the property looks to be in great condition and for the location its close to the beach.asking price is 497,500.
being that everything is a go how would you structure the deal?
“…the island”???
What island? A 3 bedroom apartment near the beach rents for $735? They get $750-800 here and it’s Louisiana near the river!
Keith
im on Galveston Island TX and i currently live in a 3br 1bth and I pay 900month
As for apartments they rent from 700 and up depending of course on LOCATION
Here on the island I have found that their are more 1 and 2 br’s for sale,rent than 3s so I feel thats my nitch if I can get started as for vacancy rats Im not sure on just yet but working on it