Quote:
Originally Posted by agencia1
That's obvious but perhaps I worded this poorly. I was referred to within the context of his own work. From reading his posts, seems he does have an angle and preferred market. Most RE developers/ investors usually work within a niche they understand and within those niches have areas of the project where they really look to maximize return.
If he only wants to talk about things qualitatively guess I am barking up the wrong tree.
Ok, I think I'm with you now. You want to know what types of problems are fixable, what degree of effort different types of fixable problems with take, and the expected return of different types of fixable problems. Right?
It depends a lot on what property type you're looking at. If its a single family home or a small rental (<6 units) you are looking for structural problems. That is because all these properties can be bought with regular SFH financing. So there is a lot more competition for these properties. Also, generally having great cosmetic qualities are generally NOT going to be worth the investment. You want to do BASIC cosmetic stuff (mostly paint & carpet). But in order to get properties that show a good cash flow, you gotta go find properties that are distressed so you can get the low price you need.
If you're looking at apartments, MHPs, or other residential commerical property, you are primarily looking for properties that are POORLY MANAGED. You get more bang for your buck for your cosmetic improvements here because you have some economy of scale so you can negotiate better prices. Plus, each tenant added will be worth more money to you than the SFH tenant.
On the other hand, you DO NOT make much money in this asset class by buying properties that are extremely distressed. that is because the property will be valued based on INCOME ONLY as opposed to the SFH which will be valued based on comparable sales. Distressed commerical property will gain very little by fixing the foundation, for example. You have to fix the foundation to keep the building standing. However, unless you can translate that foundation repair into more net income, fixing the foundation will add basically no value to the property (or, another way to look at it is that it will turn an unsaleable property into a saleable property).
So that is why cosmetic improvements will make you more money in the apartment complex. You make cosmetic improvements, raise rents, get more tenants, then you'll seriously improve the bottom line. In commerical REI, you want to find properties that have high turnover, poor quality tenants, outdated cosmetics, bad or no landscaping, few tenant services, etc. Those are things you can fix easily to create value quickly. But in SFH, you primarily want to buy the property super cheap so you can fix whatever is wrong and still be able to get your money out and still have a postive cash flow.