Moses Kagan on Real Estate

Do I see any good deals?

with 3 comments


Recently, people keep asking me if I see any good repositioning / flip deals to do. And my answer boils down to this: Yes, but only for certain types of investors.

Here’s what I mean: Right now, prices for apartment buildings, especially small apartment buildings, are high and rising. A year ago, you could buy a 4plex in Echo Park for 10-11x the annual rents. Now it’s more like 12-14x. I don’t like those numbers at all, especially for FHA buyers, who really shouldn’t be paying more than 12x unless they are very confident in their job security.

Even larger buildings are getting more expensive. It’s tough to find things for less than about 10.5x now, with properties in really good areas or with really low rents going for 11-14x.

Now, a buy and hold investor with enough cash to buy a 5+ unit building can still do pretty well buying for 11x, especially because debt is so cheap right now (if you’re willing to take recourse, it’s sub-4% for 5 year bank debt).

But people who want to make money more quickly are kind of stuck unless they have a lot of expertise and cash. That’s because the most important factor in the success of any flip / re-positioning deal is the price of acquisition. Since prices are high now, you really need to have a lot of expertise in doing these sorts of deals to make the numbers work. You have to be able to:

  1. Clear the building cheaply
  2. Renovate cheaply
  3. Use (moderate amounts of) debt
  4. Get premium rents

Ideally, you’d be able to do all of the above. But that would make you a professional like me, not your average part-time investor.

If you’re interested in being involved in these sorts of repositioning deals, get in touch.


Written by mjkagan

06/27/2012 at 4:01 am

Posted in Buying, Rehabbing

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