Over 10 Cap in Reno?

This 20-unit complex in Reno just sold for 1.75M:

https://www.redfin.com/NV/Reno/3400-Sigg-Dr-89509/unit-20/home/146606780

Price cut all the way from 2.5M back in Jan:

It claims to have a “net operating income” of 190K:

24%20PM

If true that’s over 10 cap. Should we start looking at Reno? :thinking:

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those 2-BR apartments rent probably for $1000/mo and 1-BRs for $900?
$950 * 20 * 12 = $228k

My experience is that generally expenses make up 1/3 of the gross, so I’d expect more like $150k net. In this case, expenses may be higher because gas and water are master-metered = landlord pays water, gas for heat, gas for hot water

The listing talks about “pro-forma” rent, so that $190k net may just be a hopeful projection.

It may well be the reason why it sold lower.

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Even at 150k net that’s 8.5 cap. Pretty good no?

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Older buildings need a higher cap rate to compensate for repairs. Plus appreciation is more suspect in Reno than the BA. But 8.5 cap rate is attractive. Double the average in the BA

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I try to stay away from master-metered properties. (gas, electric - it’s normal that the LL pays water and garbage). I believe “free” electricity and gas does not encourage tenants to save.

We had one 6plex in Boulder Creek where all utilities were master-metered, and we had private electric sub-meters. The tenants were billed monthly for electricity, gas, water, even garbage. The gross rent was $84k/year, and landlord’s only expenses were taxes ($8k), insurance ($2k) and maintenance ($3k). We were looking at ~$70k net.

I had the property listed for $995k, and dropped a few times (10% each) to $825k.
It sold last month for $812k.

With the as-is rent, that was around 8.5% cap.

Keep in mind, half of the rents were low, e.g. a 4-BR detached house was rented for $1700, with new paint and carpet, that should be $3000/mo…
the new owner is relocating the tenants unit per unit… investing about $75k… will collect $120k/yr
($105k net)

His cap rate would be 105/(812+75) = 11.8%

There’s a potential to do improvements beyond 75k, one could even do an addition to 2 of the buildings… my experience is that cost of construction is too high to make a good rental, but it’s a possibility.

I really liked the property, was a difficult decision to sell, as are some other upcoming sales, but it’s the only way to break up with a business partner.

Here is the redfin listing:

https://www.redfin.com/CA/Boulder-Creek/12869-CA-9-95006/home/2382557

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Typo? $2000?

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Not a typo. Section-8 would pay $3590 for a 4-BR in that area (San Lorenzo Valley).
Craigslist has right now 3 and 4 bedrooms in Boulder Creek, ranging from $2850 (smaller 3BR) to $5200 (5BR, larger). $3000 is low, and the new owner likely will charge more than $3000.

And, yes, I was just to busy or lazy to deal with the situation… that’s why I only charged $1700.

The 4-BR house had 1800+ sqft…
the 2-BR house had 600 sqft, and got multiple applications instantly when advertised for $1780 in January (!) 2019. So, yeah, that 2BR rented for more than the 3 times as big 4BR.

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Before you all think that investing in Boulder Creek is the best thing after sliced bread.

@elt1 once said, the holy grail is 10% appreciation and 10% cap rate.
While our property will earn the new owner income at over 10%, it’s not going to appreciate as well.

We bought it for $650k in 2013 and sold for $812k in 2019.
Over 6 years, and just 25% up. That’s not much per year.

Most other properties doubled in value (Santa Cruz County), or tripled (Santa Clara County) during these same 6 years.

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Only in CA. 25% is good for most States.

Thanks for all the good opinions @ptiemann.
I noticed the Boulder Creek MFH has a 1905 build date. Anything older than 1940 is a big turn-off for me. Am I being silly or are there enough positives to consider buying old MFHs? For instance, what were the maintenance expenses on this one that you can recall?

Frankly anything built before 1978 has lead paint issues…I bet you to pay an extra 1 cap for post 1980 construction

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Really? When? That’s so wise I can’t believe it came from @Elt1. :smile:

True, it’s supposed to sell lower. One of the buildings was actually from ~1845, had been moved there. However, the electrical was upgraded, double pane windows, but still galvanized water lines.
That’s what the new owner did first, changed the plumbing to copper & ABS. That particular building had 2 stories and a basement (~6’6"). Easy to inspect and repair the foundation.

Old construction is a turn-off to me too, if in original condition, but it can usually be fixed.

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August 2016, by @elt1:

I’ve been striving for his numbers since then. 10 cap income can be controlled, sort of, with fudging of numbers. 10% appreciation… not so much

Wait for the next recession.

It would have sold for way more than $812K if you weren’t “too lazy” to raise the rents to market.
As is CAP would’ve been over 10