Market Conditions: A shortage of inventory in multi-family buildings in the Fresno/Clovis area has created an unusual market.  Prices are very favorable for the investor and interest rates are still low.  The problem is finding a quality property.  Most of what is on the market at this time is bank owned junk.  Be patient and keep looking, the right property is out there.

Rents Analysis: Apartment vacancies have increased in the Fresno market.  I believe there are two main causes; people leaving the area due to unemployment (which is estimated at above 15%), and families doubling up as a result of lower incomes.

Most multi-family buildings in the Fresno market were built in the 1960-1970 era and rent on those units average $650 per month for a typical no frills two bedroom one bath.

So we have a limited supply of older units available at the lower rents.  This keeps vacancy low and puts pressure on those lower end units for rent increases. Fresno has one of the highest concentrated poverty rates among the larger cities in the nation.  This adds even more demand in this low-end limited supply market.

Property Selection – Apartments:

Rent bracket - The rental range that I find most desirable is in the $600 to $800 per month range. This means we are recommending older existing units.  The purchase price must allow for the units to be rented at very competitive rates and still deliver a reasonable profit to the investor.  An investor with deep pockets and patience might consider purchasing a newer building, with the higher vacancy, at a substantial discount and benefit tremendously as the rental market recovers and that vacancy decreases to normal rate.

Property Location – Tenants are seriously shopping rents and areas that were previously thought of as undesirable are gaining respectability as qualified prospective tenants find it necessary to broaden their searches in order to locate affordable housing. This means we must evaluate each property by immediate neighborhood, not just by what part of town the property may be situated in.  Safety and proximity to shopping schools etc are key.

Investment Strategy:  Do a cash flow analysis and price the property to deliver to the individual investor an acceptable cash on cash return. Give your plan 3 years or more to realize the best possible profit.  Do your own rent market analysis.  The error I see most often is an overly optimistic income expectation.

Financing: One to four units are financed through conventional 75% loans.  Personal income is a major factor used in qualifying for these loans.
Five or more units fall into the commercial loan category. Commercial loans are based primarily on the Profit and Loss histories of the properties. The property must demonstrate to the lender that it can support the mortgage with room to spare based upon a combination of the real numbers and the lenders ratios of income/expense and estimated vacancy etc.  Commercial loans usually require a down payment of 40% or more.  We have ongoing relationships with the most qualified lenders to assist you with financing.

Insurance: This is not as simple as it used to be. Investigating previous claims on the property and shopping the insurance market has become an important part of the overall purchase process.

Price:  A typical 850 sf 2/1 unit will currently rent for about $650 per month. A typical price of two to four units is currently about $60,000 per door.  Larger buildings will sell for less. We must utilize real numbers when figuring the gross multiple and cap rate formulas. Do not overemphasize your ability to turn a property around. It often takes more time and money than we think.

Amenities: Laundry hookups in the unit, attached garages or carports, garages or carports accessed from the street, two bathrooms, and patio area are considered important.

Management: A majority of those properties on the market, for a variety of reasons, suffer from poor management. This means some changes must be made to realize the greatest return on your investment. An essential part of any investment decision is to investigate the property managers in the area prior to closing escrow on a property and have a game plan with the selected management team in place at close of escrow.  Make the prospective property management team part of the rent analysis process. They will be the ones filling the vacancies.  I have a personal relationship with preferred property managers and we will assist you in formulating this game plan.

Profit Potential:  I expect to see increased demand from investors to acquire small apartment buildings in the Fresno area. This will cause the gross multiples to increase and cap rates to decrease over time. The investor who gets in early will see the highest profits.   I also expect to see rents increase in the long term.  This will also increase the profits of the early investor.

Cash Flow: See Estimated Cash Flow of 4-plex, Estimated Cash Flow for 8-Plex and Estimated Cash Flow for 26 Identical Units worksheets.

City of Fresno - Online resource for information about the City of Fresno, CA provides access to Mayor's office, City Council, city government documents, and all Fresno city departments.

City of Clovis - Online information about Clovis, CA provides access to Mayor's office, City Council, city government documents, and all departments.

County of Fresno - Fresno County Web site for all county offices and departments.

CVB Virtual Fresno - Tour of some of the beautiful sights from around the city, the Blossom Trail, nearby National Parks and local activities.

California State University, Fresno - Fresno State's sprawling campus draws students from all over the U.S and abroad to the Central Valley.

Fresno Republican Newspaper - Central California's first newspaper was founded in Fresno in 1876 and is still going strong.

Clovis Free Press - Online conservative newspaper for the expanding Clovis community adjacent to Fresno.

The Fresno Bee - McClatchy owned print and online newspaper for Fresno, CA

Tower2000 - Fresno's historic Tower District is the Valley's center for fine dining, cultural arts, theatre, entertainment and night life.

Fresno County Office of Education - FCOE Programs and Services directory, School Districts, Superintendant of Schools, and Board of Education.

Mortgage Tool Shed - Online mortgage tools powered by Fannie Mae. Includes calculators to calculate payments, true cost, affordability and much more Also includes a tool to analyze how likely you are to be approved for a home loan.

Contact Larry Hawkins, Realtor
Office: (559) 438-9425
 FAX: (559) 438-9406
Larry@YourFresnoBroker.com