“At 2.9 acres of physical land, and a purchase price of X (let’s assume priced to the dirt, likely $50/foot) they are in this deal for $6MM dollars day one.
If they wanted to be in the business of renovating (This IS income producing property, not pride of ownership single family housing) and retaining the character of the original complex, look at the math . . .
assuming a coverage ratio of 1/1, and average unit @ 1000 square feet, that gives you 120 units and 120,000 to renovate meticulously.
Assuming you would have to put $20,000 into each unit to justify buying this deal, you’ve now got $6MM + $2.4MM in renovation dollars, plus the fact you’ve got to kick everybody out of their unit to renovate it, do the work, then relet the unit. So, that puts you at 1 year of ZERO revenue, and whatever associated costs there are there.
For the sake of argument, your all-in is $10MM. THEN, after you have painfully restored a garden complex to the delight of yourself (I promise you the neighborhood won’t come out and bring you a check for your efforts to retain transient renters for another 50 years), here is your reality:
1) you would need to jump rents from $800/month to $1200 or greater, lease them all, then sell at a benchmark cap rate exit for such a non-conforming product, and that’s assuming you get your investors interested in the capital and scope in the first place, rather than buiding a 2.5:1 ratio development against $50 dirt
2) you would need to find an exit partner with just as much interest in running this model as you did creating it. institutional buyers that are willing to overlook the latest TCC Alexan product to buy a risky retrofitted low coverage ratio multi family deal in a market that has very little inventory of trailblazing like product. what i’m saying is this won’t exist, so you’re stuck with cash flow now. So . . .
you have $10MM in it, and if you are the greatest level of execution here, you are 7 years of revenue before you are whole on your initial investment, and you have a huge chunk of change parked in it, with zero recap abilities. if i run a bank, i’m not cashing you out of that mistake.” [HTX Rez, commenting on Report: Castle Court Midrise Planned for Andover Richmond Apartments Site]
Comment of the Day: The Same Boat
“. . . When talking to people looking for stuff in Montrose, this is what I hear:
1) Nothing available
2) Over priced for what you get
3) By the time you try to take it, someone else already has
4) What you do get will have bad electric, bad roof, bad pipes, sketchy tenants, etc.
5) Was built in the 60′s most likely. Doesn’t have it’s cert of occupancy, no water pressure, low insulation, old windows, etc.
Then I like to joke that this is what I hear from people trying to BUY apartments in Montrose.
Point being, the challenges you face as a renter are the challenges you face as an investor. And the solutions are often the same: Network with owners, jump on something good if you see it, communicate with the property manager showing if you don’t like the place (this is big), look every day. . . .” [Cody, commenting on Comment of the Day: What’s the Thought Process?]