What to do if there are no comps! (Building Rental Properties)

analyzing a deal apartment investing buying land market research value add Nov 27, 2021

What if the market you're looking to build rental properties in seems perfect for multifamily but there are no comparable properties? How do you find out if there is a need for rental units? The B2R Show hosts discuss this and more in...

What if you don't see a lot of comps at all? What if there isn't any data? What alarm bells or what green lights go off in your heads when you see that?

What do you do if you're looking to do a build-to-rent and there are no comps?

Sherida Zenger: I would think if there's not a lot of rentals, then maybe it's an area that doesn't need rentals. But again, you're going to have to dive a little bit deeper to see, is there a need there?

It could mean that there is no need to, so right. Going to the red side saying, oh, maybe this isn't like alarm bells, this isn't the right area. So, I mean, that's going to be talking to the city. That's going to be a little bit more due diligence.

Chase Leavitt: But for the five-minute, take an estimate, take an estimate of what you think it's going to be, or expand to another city.

That's maybe 1-5 miles, whatever it is, your best next comp. And then take that one. And then when you dive deeper beyond the five-minute. That's when he started to call the city and say, okay, what's the need here when you really dive into it?

Sherida Zenger: Well, it kind of reminds me of our Nampa project.

We didn't have anything where there were no comps, like literally nothing there. And we thought, okay, we've got to be a little bit lower than Meridian. Where do we want to be? And we kind of shot from the hip and luckily, we shot low. And so, rents are quite a bit higher, which is amazing for us, but that was one of those markets that again, we were like, what do we do?

We don't want to be overly aggressive.

Chase Leavitt: You bring up a good point. We estimated, but we were conservative. We felt we were conservative. And at that time, I think we're probably we're or spot on. And then over a period, we found out that there actually about a $100-150 per unit higher.

Sherida Zenger: Now that brings up another point.

I was running a proforma. The cap rate was a little bit on the low side and, the seller who is my client said to me, what if we projected rents? And then this also came up in a conversation I had with Steve Olso,n, where he said, Hey, right now where these rents are for this existing property are a little bit on the low side.

Property management thinks when they renew, these are going to be a little. Again, that's a gamble and a risk that you're hoping that the market is still pushing up, which it should in the climate we're in right now. But again, it's kind of an unknown. So some people may purchase something that's at a lower cap rate knowing, Hey, I can hold for six months until these leases renew and actually get a couple of hundred dollars more in rent a month per door.

Steve Olson: True on that deal that you are, you're talking about. They have existing leases getting signed for like 150, maybe 200. And where this particular unit is at. So, it would take the market really suffering because we're not hoping we know where they're coming in at. Right. And that's, uh, that's tricky based on time of year there are some variables that, that can get you there.

Chase Leavitt: It's a value add. It's an easy value add if you understand and do your research.

Sherida Zenger: And you figure out when the leases are up, right. Hey, when are these Lisa's going to be up? Is it going to be up in December again? And they're going to not get me as much as they could, maybe in a summer month, depending on what market

Steve Olson: Do a six-month renewal and then take that thing all the way up to the full market.

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