Latest / Own More Doors / #85 The Highest Cap Rate in Long Beach Is a Fully Renovated Building (That Almost Never Happens)

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#85 The Highest Cap Rate in Long Beach Is a Fully Renovated Building (That Almost Never Happens) · Own More Doors

• 0:00
  SPEAKER_01: Best building, the best cap rate.
• 0:02
  SPEAKER_01: Rarely are you able to have your cake and eat it too.
• 0:05
  SPEAKER_01: But in this case, you are.
• 0:06
  SPEAKER_01: We have a fully renovated seven cap here in Long Beach and we're going to show it to you.
• 0:11
  SPEAKER_00: Investors love, love to chase deals that have the highest cap rate because essentially what you're getting is the best rate of return.
• 0:18
  SPEAKER_00: And so today we're going to do a deep dive on the newest listing that Cody and I have on a 10-unit building here in Long Beach.
• 0:25
  SPEAKER_00: Hi, I'm Juan Weizar.
• 0:26
  SPEAKER_00: And I'm Cody Charnell.
• 0:28
  SPEAKER_00: And we're going to do a deep dive on this 10-unit building 5529 Dairy Avenue.
• 0:32
  SPEAKER_00: We're going to bring it to you today.
• 0:34
  SPEAKER_00: A lot of times when we sell a building and the building has been completely remodeled.
• 0:38
  SPEAKER_00: And when I say completely, I mean taken down to the studs and everything is brand new.
• 0:43
  SPEAKER_00: A lot of times when we sell that type of building, we have to settle for a lower than desirable cap rate.
• 0:48
  SPEAKER_00: In this case, you don't have to.
• 0:50
  SPEAKER_00: You get the improvements, you get the highest cap rate in all of Long Beach.
• 0:54
  SPEAKER_00: Let's learn more about the asset.
• 0:55
  SPEAKER_01: So, as one said, this is 10 units.
• 0:57
  SPEAKER_01: The address is 5529 Dairy.
• 1:00
  SPEAKER_01: So it's up in North Long Beach.
• 1:02
  SPEAKER_01: And it has been completely gone through.
• 1:06
  SPEAKER_01: So it's almost like you're buying new construction.
• 1:07
  SPEAKER_01: You have new roof, new plumbing, new electrical, new windows, and every single unit has high-end finishes, which not only helps you get great rents, but it also keeps your expenses low because you have less uh deferred maintenance.
• 1:21
  SPEAKER_01: Insurance companies love the new system, so your insurance costs are low.
• 1:25
  SPEAKER_01: You tend to have less turnover because tenants like the space.
• 1:28
  SPEAKER_01: So there's a lot going for this one.
• 1:30
  SPEAKER_00: Let's go into the numbers, Cody.
• 1:32
  SPEAKER_00: Um, and let's just walk people through from the beginning, from what we call our performa in terms of pricing.
• 1:39
  SPEAKER_00: Uh I want to go through the cap rates, the gross rate multiplier.
• 1:42
  SPEAKER_00: Most importantly, is anytime we get into the five plus market, a lot of that's determined.
• 1:48
  SPEAKER_00: It's not so much, I don't want someone to think that everything is 25% down or 30% down.
• 1:53
  SPEAKER_00: That's not the case.
• 1:54
  SPEAKER_00: Commercial financing is much different.
• 1:55
  SPEAKER_00: We have to meet a certain debt coverage ratio.
• 1:57
  SPEAKER_00: I'm sure if you've been watching our videos, you know that if we look at one specific eight-unit building, it might require 25% down.
• 2:04
  SPEAKER_00: And the one next door that's identical because the rents are for some reason not the same, you might need 30 or more to meet the debt coverage ratio.
• 2:12
  SPEAKER_00: So, what I really like about this building, when it comes to commercial loans, it's not common to find a building that that we could meet the debt coverage ratio with only 25%.
• 2:24
  SPEAKER_00: And in this case, we can.
• 2:25
  SPEAKER_00: We're gonna show you guys what it's gonna take to be able to buy this property.
• 2:28
  SPEAKER_01: All right, so let's dive into the numbers on this one.
• 2:30
  SPEAKER_01: Uh, asking price is 3.35 million.
• 2:34
  SPEAKER_01: Um, it's priced at 10.87 times gross based on current rents.
• 2:39
  SPEAKER_01: There is a little bit of upside.
• 2:40
  SPEAKER_01: And if you're not familiar with gross rent multiplier, it's a super simple metric that we use to compare apartment buildings to one another.
• 2:47
  SPEAKER_01: So the equation for a gross rent multiplier is just your price divided by your gross rents, which is all the rent you expect to collect in a year.
• 2:56
  SPEAKER_01: And example would be a million dollar property that brings in 100 grand, so a million divided by 100 spits out a number of 10.
• 3:03
  SPEAKER_01: And another way to think about that is you're paying$10 in purchase price for every$1 of rent that that property generates.
• 3:11
  SPEAKER_01: So we want the gross rent multiplier to be lower when we're buying.
• 3:14
  SPEAKER_01: So this is a good gross rent multiplier for a fully renovated building.
• 3:18
  SPEAKER_00: In the city of Long Beach, you know, when we go 12 the last 12 months, anything that's five units and above, the the average gross rent multiplier in the city of Long Beach is 11.
• 3:28
  SPEAKER_00: So this one, although it's a brand new building, it's still beating the average of Long Beach, which is normally not the case.
• 3:35
  SPEAKER_00: Normally the properties that beat the average are properties that still need a lot of work.
• 3:38
  SPEAKER_00: But in in this case, this is why we're trying to tell you you get the benefit of an amazing building that's been remodeled, but also the pricing is below what we normally see.
• 3:47
  SPEAKER_01: Um the other metric that we look at all the time is cap rate.
• 3:50
  SPEAKER_01: So cap rate takes expenses into account.
• 3:53
  SPEAKER_01: So instead of using the gross rents like we were using for gross rent multiplier, now we're using our net operating income.
• 4:00
  SPEAKER_01: So the equation is net operating income divided by the price, and it spits out a percentage.
• 4:04
  SPEAKER_01: And uh another way to think about cap rate is if you were to pay all cash for this building, not get a loan, that's the rate of return that you'd be making on your money.
• 4:13
  SPEAKER_01: So on this one at 7%, we're far exceeding the market, uh, especially for something that's fully renovated.
• 4:21
  SPEAKER_00: We're we're always looking at the market.
• 4:22
  SPEAKER_00: What did the last 12 months do in the city of Long Beach?
• 4:25
  SPEAKER_00: And the average cap rate was actually 6.4.
• 4:28
  SPEAKER_00: So here again, we are outperforming the market.
• 4:30
  SPEAKER_00: So when we're telling you we're bringing you the best deal, we're literally bringing you the best deal.
• 4:34
  SPEAKER_00: The things that I love about this property is that clients will call us all the time and they'll say, either I have a million dollars, I have$750,000 from from a prior, typically it's from a prior sale.
• 4:46
  SPEAKER_00: I sold something now, now we have this money.
• 4:48
  SPEAKER_00: And I always like to show people, well, this is what a million dollar buys you.
• 4:51
  SPEAKER_00: In this case, you don't even need a million dollars because with uh$837,000, you would qualify for this loan.
• 4:57
  SPEAKER_00: I'm not saying that's not a lot of money, but the people who are buying apartment buildings and who sell something, typically that is like an it's it's normal for them to have something around that that range.
• 5:07
  SPEAKER_00: And so if someone called us and said, I'm not looking at anything in Long Beach unless it's a true 7% cap, uh, we're not gonna have much to show them except this one.
• 5:17
  SPEAKER_00: So this one does meet the metrics, and that's why we really like this property.
• 5:21
  SPEAKER_01: All right, so let's check out the inside of this one just so you can see how much they did in these renovations.
• 5:26
  SPEAKER_01: So um, as you can see, they have recessed lighting, um, nice open concept, new electric panel back there on the wall.
• 5:33
  SPEAKER_01: You can see nice kitchens, they tiled all the way up the wall for the backsplash, which is great long term.
• 5:42
  SPEAKER_01: It's gonna help you um avoid you know water intrusion issues.
• 5:46
  SPEAKER_01: Um that's something that is an extra expense that they didn't have to do, but they but they did go the extra mile there.
• 5:53
  SPEAKER_01: Um ceiling fans in all the bedrooms with recessed lighting as well.
• 5:59
  SPEAKER_01: The same tile in the bathroom where they went all the way to the ceiling, which is awesome.
• 6:04
  SPEAKER_01: You can see exterior's been fully redone, drought-resistant landscaping to keep expenses low.
• 6:10
  SPEAKER_01: There's um tankless water heaters for the units, which you can see back there.
• 6:15
  SPEAKER_01: Um, something else, so metal staircases.
• 6:19
  SPEAKER_01: So we have these balcony inspections now.
• 6:21
  SPEAKER_01: So when we see metal staircases, we love that because that's one less thing that we're going to have to inspect.
• 6:27
  SPEAKER_01: Um you know, to be in compliance with the state rules, you do still have this catwalk, but you know, they they did their best to minimize what what's gonna need to be serviced.
• 6:38
  SPEAKER_01: So that's really nice.
• 6:39
  SPEAKER_01: But all new appliances, new windows, like I mentioned.
• 6:42
  SPEAKER_01: So yeah, this one, I think if you're looking at the wide range of buildings in Long Beach and the wide range of conditions, this is on the very extreme nice of what we'll typically see.
• 6:57
  SPEAKER_01: Most buildings are even even when people say they've been renovated, there's still stuff that you need to do.
• 7:02
  SPEAKER_01: This one, it's really turnkey.
• 7:04
  SPEAKER_01: Like there's nothing that you really need to do.
• 7:06
  SPEAKER_00: So there you have it 5529 Dairy Avenue in Long Beach.
• 7:09
  SPEAKER_00: We're super excited to be uh launching this um new listing.
• 7:12
  SPEAKER_00: Cody and I will be releasing it out this week.
• 7:15
  SPEAKER_00: And so we're doing these videos two part.
• 7:16
  SPEAKER_00: One, yes, of course, we want to market this this uh this property.
• 7:20
  SPEAKER_00: That's our job, that's our duty.
• 7:21
  SPEAKER_00: But two, we want to bring you along.
• 7:23
  SPEAKER_00: We want to show you the numbers.
• 7:24
  SPEAKER_00: You might be someone that is looking to buy, and the and and the more tools and resources you have at your fingertips, and you're able to understand uh our performa and the gross rate multipliers and cap rates, the better you are gonna be.
• 7:37
  SPEAKER_00: Now, if you're a seller, you might be watching this and you know the market the market right now has been a little slow.
• 7:43
  SPEAKER_00: Um, it's really is more of a buyer's market.
• 7:45
  SPEAKER_00: And so buyers right now are very um excited that that's finally the case, even though the interest rates remain pretty high.
• 7:52
  SPEAKER_00: What I want you to know if you're a seller, you could we want to show you where properties are trading and what Cody and I could do for you should you consider selling it.
• 8:00
  SPEAKER_00: So there you have it whether you're a buyer, whether you're a seller, and you just simply want to talk multifamily, reach out to us here at Sage Real Estate.
• 8:06
  SPEAKER_00: Thank you.