As a contractor, I've seen small apartment acquisitions with 6-8% cap rates. In-place rents often lag pro-forma potential, offering value-add opportunities.
I've seen similar opportunities in the Houston and Dallas markets, where in-place rents are 10-15% below market rate. The key is to accurately underwrite the pro-forma rent bumps and expense ratios to esure the value-add strategy pays off. What's the aveage expense ratio you've seen in these small apartment acquisitions? And how are the loans typically sized in relation to the cap rate?
I've worked with several small apartment acquisitions in the Lexington area, and while 6-8% cap rates are attainable, I've found that actual returns can be lower due to hidden costs and appraisal assumptions. For instance, in-plae rents may indeed be lwer than pro-forma potential, but getting tenants to pay those higher rates can be a challenge. I've seen cases where rental renewals have been flat or even decreased due to local market trends. When evaluating these opportunities, it's essential to consider the true cost of renovations, potential vacancies, and the time it takes to stabilize the property. I'd like to know more about the specific deals you've seen - what was the actual cash-out refinance amount after renovations, and how did that impact the overall return on investment? Were there any surprises or lessons learned during the process?