Kitchener multiplexes and price/door

safsad

Inspired Forum Member
Registered
Calling experts in the KWC area.In Kitchener what price per door is considered reasonable for a 20+ multiplex?I was out seeing a property yesterday and the guy wanted 79K per door[all 2 beds].Its in great shape and fully tenanted and rents for about $750-800.


Is there room to increase the rentals at these levels.
 

housingrental

Frequent Forum Member
Registered
It depends


Lower price per unit are available - however material variance in condition / rent roll / upside - everything is property specific


If you would like to post more information I'm happy to provide my perspective
 

Thomas Beyer

Senior Forum Member
REIN Member
79/door is on the high side in KWC .. but maybe OK for all 2BRs especially if in decent location, large, with balconies and upgraded !



Run the numbers using $3600 to $3800/unit/year in expenses to see what a lender would lend you .. maybe only 65% LTV .. using a 7.5% CAP rate or so .. thus you need about $500,000 cash to buy a 20-plex. Do you have that ?



In addition:

1) Ensure that rents, vacancies and expenses are ACTUAL (based on 2 or better 3 years of documentation)



2) Ensure that you know what major items, if any, have to be fixed (roof, boiler, hallway carpets, ..)



3) Knowing these two items know if the price is appropriate.



4)
Know who will be managing the property impeccably and take that person
on a walkthrough with you before you waive conditions !



5) Know what cash you have and what kind of mortgage you can get !



Of course price/door, cash-flow and CAP rate are related !



But: Complex problems have simple, easy-to-understand wrong answers ..



Buying a building is not that simple (i.e. price/door or CAP rate) as many factors have to be considered such as:



a) CAP rate

b) price/door

c) what is behind teh door i.e. condition of suite

d) what is in front of door, i.e. condition of common areas

e) rents today

f) immediate rental upside

g) long term rental upside

h) balconies ?

i) suite size or price per sq ft

j) views ?

k) macro-location, i.e. future of city/town

l) micro-location i.e. suburb

m) condition of major elements like roof, boiler, windows, balconies

n) interest rate on mortgages

o) cash per door i.e. cash-to-mortgage

p) availability of 1st and 2nd mortgage money

q) condo conversion abilities / potential

r) who pays utilities

s) potential future tax increases or decreases

t) ability to lower operating expenses

u) curb appeal

v) "feel" of suite / attractiveness

w) competition from new construction

x) competition from existing buildings

y) in-migration

z) new jobs coming (or leaving)



.. maybe I forgot 3 or 6 more ..



one of these elements overlooked .. and there goes $100,000 or $200,000 in potential profits for an average 20 suiter !!



.. and re your rent increase questions: This is Ontario where by law for 2011 less than 1% is allowed on existing tenants .. more if newly vacant. I do not know the local market but $750 (especially with heat included) for a 2BR sounds low to me for a decently upgraded, well located asset. It may be OK for an ugly one.
 

safsad

Inspired Forum Member
Registered
The property has 24 units.I think we can get it for 75k a unit.Is this figure still high?I dont think 70k is possible with this seller though

The location seems decent and most tenants are families.Parking is available-covered and secure.





What are the property management costs typically in Kitchener.Any recommendations for property managers.
 

Thomas Beyer

Senior Forum Member
REIN Member
do you want to buy my Lexus ? it is only $12,000 !!



.. value depends on the 26 factors mentioned .. it might be a great price, it might be too high or OK !



if in decent shape, fully rented close to market rents, in a decent location, nothing weird about property or location and not a lot of deferred maintenance it is an OK price .. nothing wow .. but likely not too high either !



get it under contract with a 60 day due diligence .. then look under the hood !
 

housingrental

Frequent Forum Member
Registered
Hi Thomas

You are high for cap rate for Kitchener unless a wreck type property.

Safsad: Get tied up and post address or email me it and I'll provide you more detailed info. From what you've posted it is not possible to provide any meaningful feedback.
 

Thomas Beyer

Senior Forum Member
REIN Member
[quote user=housingrental]Hi Thomas: You are high for cap rate for Kitchener unless a wreck type property.

..





What are CAP rates in KWC for decently located, decently upgraded assets ? 6% ? 7% 6.5% ? 7.5% ?
 

housingrental

Frequent Forum Member
Registered
Unfortunately for Kitchener a purpose built multi-plex 5.5%-6.5% would be more appropriate - and the higher end of that might only be so based on how loosely someone defines decently upgraded ...and how willing someone is to view generous pro-forma's as potential reality :)



Places with there own types of challenges such as Chopped up / older properties with additions on them / or TLC type properties higher cap rates are possible at purchase.



I don't see a lot of value in Kitchener. As an investment I prefer student housing in Waterloo.
 

Thomas Beyer

Senior Forum Member
REIN Member
[quote user=housingrental]Unfortunately for Kitchener a purpose built multi-plex 5.5%-6.5% would be more appropriate - ..
interesting .. like Alberta .. which has a better economy and no rent control !



Thus: (if true) KWC is overpriced !
 
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