Flipping or Hold for Class D/C Apartment Complex Help
Hey guys, I have some questions regarding a 50 unit complex. Context:

-Small Town—&gt; 11,250 people
-Class D/C, run down apartment with significant repairs needed. 
-30% occupancy, potential cap rate 9%ish(varies)
-No parking lot
-800k price tag

I have two options:
- Purchase, make minimum/effective renovations, and try to increase occupancy for long term  and hold as an income producing property 

-Purchase and make value add renovations in effort to flip it. Of course this would be cost intensive, but my hope is that it’s worth it. 

My questions:

-what are some things I should particularly look for or specifically at for class c/d complexes?

-what lending options do I have for apartment complexes that need repairs(meaning includes in the loan a budget to use for repairs)?

-what renovations would be needed to flip it?(common core renovations for apartment units)

-average occupancy rate before I place back on market?

General recommendations on renovations and things to consider. Thanks!
[{"id": "g7ddfnu", "text": "Is that a 9% cap on in-place or stabilized?", "replies": [{"id": "g7ddsp0", "text": "Not stabilized. It\u2019s currently below market rent.", "replies": [{"id": "g7ddvgi", "text": "What I mean is that is that a 9% cap on the income from 30% occupancy?", "replies": [{"id": "g7ddyjh", "text": "Oh no. Cap rate potential was based on 80%+ occupancy", "replies": [{"id": "g85oczn", "text": "There is no in place cap rate.  There is in place NOI and proforma NOI.  There is only market cap rate.  If you don't understand this someone will take your lunch money.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g7dfqd1", "text": "Given the D/C quality my gut is to flip. But seeing it\u2019s a small town makes me question if the demos would support demand for higher quality, more expensive product. I would do boots on the ground research here. \n\nBut other than location it sounds like the ideal flip candidate. \n\nHave you done a PCA yet? Any major systems failing? Holding a D/C product could get expensive fast if you are patching holes on a sinking ship.", "replies": [{"id": "g7dg3dv", "text": "Haven\u2019t don\u2019t a PCA yet, do you know the rough cost of one? Besides major cosmetic improvements, structurally it\u2019s fine. \n\nWhat are some things you would recommend me keep on eye out on for on ground research? Property is just a couple hour drive.", "replies": [{"id": "g7dghtq", "text": "What\u2019s the vintage?\n\nI would scope out to see if there\u2019s any product around similar to what you could bring the property to. Go on a few apartment tours and see what people are charging for amenities that are easy to upgrade like LVT, stainless steel appliances, dishwasher, etc. Literally bring a checklist with every amenity and quality factor (parking spaces, W/D, etc) you can think of and try and extrapolate what upgrades bring what additional rent. Talk to local brokers, owners, etc. \n\nThink about your competition at a higher rent point. Are house prices low enough that you would be competing for tenants who could just as easily pay a mortgage? \n\nThink about why the apartment is empty now. Is it only because it\u2019s shitty? What if there is simply no demand for apartment units without parking in this town (due to relative affordability or other reasons).", "replies": [{"id": "g7di2gy", "text": "Fair points...thank you", "replies": [], "depth": 4}], "depth": 3}, {"id": "g7e0lx2", "text": "PCA I would say roughly $3-5k", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g7e5f90", "text": "We would need way more info to give you an accurate answer.\n\nWhat are you basing your D/C rating on ?  Do you have extensive knowledge of rating properties or are you guessing ?  If it's a solid C class property, then it's something to look at.  If it's a solid D class property, then that is most likely a pass for me unless I am absolutely stealing it (think 50+% off market)\n\nWhat are avg. rents for the 1's,2's, and 3's ?\n\nWhat will it cost you per unit in order to be able to charge those rents ?\n\nWhat's it worth once stabilized ?\n\nIf your numbers work out, this is most likely a flip.  Doing minimum work almost always blows up in your face with insane maintenance costs and overall decline of the property.", "replies": [{"id": "g7ekl5l", "text": "If I\u2019m remember this right I believe my broker said it\u2019s a class c. Also looking at the demographics and condition I assumed that status as well. Two concerns I have is:\n- would I be able to turn this into a long term hold after renovations, most importantly as this is a small town what is the best way to attract tenants?\n- Average rents are $475-575, with potential to increase to $650. If I purchase this for let\u2019s say 750k and add 300k in renovations, what would be a good listing price? What occupancy rate should it have before I list it? Also what lending options are there that include renovations/repair for apartments?", "replies": [{"id": "g7f0ga7", "text": "Is the town growing at all? even low single digits?\n\n&amp;#x200B;\n\nThe more I read, the more I think it's a pass. Why is it empty if it's cheap? This is the biggest question you need to figure out.", "replies": [{"id": "g7f0lhf", "text": "I believe the previous owners didn\u2019t want to deal with the work involved. Town is growing in low single digits.", "replies": [], "depth": 4}], "depth": 3}, {"id": "g7ffzp0", "text": "Damn those are low in place rents (plan on the bottom of the bucket tenant).  $650 possible rent is workable depending on a ton of other factors.  Cap ex needed and demand for the units in such a small town are the 2 most important.\n\nWithout running any numbers:  if you can get to $650, and the demand is there, and the area isn't crime infested, and there are no major exterior repairs, and you can get all cap ex done for under $500k and you get the purchase price down a few hundred $k  .... then you will absolutely kill it.  A LOT of ifs in there.", "replies": [{"id": "g7fg6fb", "text": "Exactly what I was thinking. Thanks", "replies": [{"id": "g7fhe2g", "text": "Sent PM", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g7eidb5", "text": "Some typical issues with Class C/D product: HVACs, wood rot, structural problems, functional obsolescence. Definitely have a PCA done, you should do that on every deal regardless of condition, but I would also have some vendors come and quote costs to repair. \n\nWhen looking at major renovations a couple things I like to keep in mind are will I be able to increase revenue through occupancy or higher rates by an amount that compensates me for the risk. In other words, if I\u2019m targeting a 12% cash-on-cash then maybe I want a 20% ROI on all the repairs needed. If you need to spend $200k on renovations then I would want $40k increase in annual revenue to compensate me for the risk. I made all those targets and numbers up, but you get the point. \n\nI think the most important thing to do is visit comps either in your town or neighboring towns with similar demographics. Find out occupancy and rates at buildings similar to yours today and at buildings that are similar to yours after renovation. Make sure the spread is worth the work and risk. Good luck.", "replies": [{"id": "g7ek4u0", "text": "I agree, thanks. Currently the rents are below market but my only concern for this 50 unit is that it is in a relatively small(11k) town. Will it be able to have a 90% occupancy rate? If so, how would i attract tenants in this case for it?\n\nPreviously I was in residential rentals, now looking to liquidate my portfolio completely and enter into CRE. Starting off with a 50+ unit complex. Would also appreciate if you suggest any good learning materials, videos, or books for my to learn more on apartment CRe", "replies": [{"id": "g7eor16", "text": "I think visiting comps will give you that answer. Call the property management companies that run them and figure out their occupancy. If they\u2019re running at 95% that would indicate you can get there too. If they are 60% occupied then you probably will be too. \n\nI don\u2019t really have any book recommendations. I\u2019ve worked in multifamily acquisitions for a while so learned through experience. If you send me contact info and the flyer and financials I\u2019ll give you some more specific feedback.", "replies": [{"id": "g7epgxz", "text": "Thanks will take you up on that offer once I get sorted!", "replies": [], "depth": 4}], "depth": 3}, {"id": "g7f0t46", "text": "Is cost the only thing attracting you to this property?", "replies": [{"id": "g7f542u", "text": "Cost is definitely attractive but it\u2019s not why I like it.  I\u2019m not worried about the cost but it\u2019s intrinsic value", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g7eiij9", "text": "$16,000 a door ?!\nJudging that alone- wow", "replies": [{"id": "g7ejv6c", "text": "What do you mean?", "replies": [{"id": "g7ggk0j", "text": "That\u2019s a crazy absurd low basis per unit. Is this thing in like middle of nowhere North Dakota", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g7fp5a3", "text": "What\u2019s the capex situation look like", "replies": [], "depth": 1}]