| Market Conditions: (March 2008) Buy low - Sell high! A temporary excess of
inventory in the small apartment market in the Fresno/Clovis area has
created some great buying opportunities. Some real bargains await the wise
investor with a 3 year or longer game plan.
Property Selection – Apartments:
1) Rent bracket - The vacancy rate is
at historic lows. The rental range that I find most desirable
is in the $600 to $900 per month range. This means we
are recommending older existing units. Newer units now
being planned will be built at a cost that will not allow
them to compete with the rents of older properties. This
means competition will be limited to existing properties.
2) Property Location – Rents are increasing monthly
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.
Investment Strategy: Real estate prices in Fresno have undergone a 5 year
run of price increases. Therefore as an investor we must look at realistic "projected" market rents as our basis for price evaluations of most properties.
Give your plan 3 years or more to realize the best possible profit.
Financing: One to four units are financed through conventional 80% 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
therefore may require a down payment of 30% 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: As discussed above,
incomes are quite varied. This makes the traditional cap rates
and gross multiples useless if based on past rent incomes.
If we adjust to projected rent incomes then we can begin to
properly evaluate the property. A typical 820 sf 2/1 unit
will currently rent for about $650 per month. A typical price of two to four units is currently about
$100,000 per door. Five or more units will sell for about $80k per door
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. We assist in formulating this
game plan.
Profit Potential: The market has seen an increase in rents in the 8% range
during the last 12 months. I anticipate a sustainable rate of increase in the
5% to 8% range into the foreseeable future. This is a best guess based upon
population growth projections and household income range projections.
When you do the math on this leveraged investment it is an excellent return
on a very safe investment.
Cash Flow: See Estimated
Cash Flow of a 4plex and Estimated
Cash Flow for 12 units worksheets.
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