Multifamily Real Estate Investment Evaluation: Case Study

Hi! I have answered 3 questions from this case study (below) but am unsure of my answers. I would be really grateful for and appreciate any input on how to improve my answers or if I have stated anything incorrectly! 

The Client: John Nichols

John is a qualified real estate professional/investor interested in increasing multifamily portfolio in Gainesville, Florida. His preferred asset acquisition size is 20 - 40 units. He is in the highest ordinary income tax bracket and is a material participant in his real estate investments.

The Property: S Apartments (Attached a File on Property for More Details)

John is considering investing in multifamily property, S Apartments, a 25 unit apartment complex in Gainesville advertised on a brochure.

For federal tax purposes, operation of this apartment complex is "trade or business".

The Research:

Dorms to Diplomas: 53.7%

College Towns:        25%

Other:                      17.7%

80% of students at the University of Florida live within 3.65 miles of the northeast corner of the university. S Apartment is within 0.4 miles and is well within the trade area for university housing. 

Dorms to Diplomas:

Median age: 21.7 years

90% of households are renters.

College & graduate school enrollment is 81%.

Nearly 75% of employed residents work part time in low-paying service industry jobs.

43% of residents live in on-campus dormitories while the remainder rent apartments in off-campus multi-unit buildings

Computers and internet are important to research assignments, search for jobs, look at news, keep in touch with family. Residents participate in sports for exercise. They enjoy going to college football & basketball games, rock concerts, movies and bars as well as dancing, playing pool and renting movies on DVD. They listen to classic hits, public and rock radio programs.

College Towns:

Median age: 24.4 years with high concentration of 18 - 24 year olds

29% of households are owners (typically town residents living in single-family dwellings)

Median home value: $148,030

College & graduate school enrollment: 41% (education is key focus for college town residents)

Convenience is primary consideration for food purchases; residents frequently eat out, order in or eat easy to prepare food. Many own laptop computer. In free time, they jog, go horseback riding, practice yoga, play tennis, rent videos, play chess or pool, attend concerts, attend college football or basketball games, and go to bars. They listen to classical music and public radio programs.

Activity:

John wants to know: Can these apartments be rented at the rated suggested in the brochure ($725/month)?

Question 1:

What is your opinion of the amenities and physical aspects of the property and what factors did you consider in forming this opinion?

My answer:

Understanding the population:

S Apartment is a 25 unit apartment complex which is in John's preferred asset acquisition size. It is also located in Gainesville, Florida, an area that John is interested in investing in. It appears that of the 53.7% Dorms to Diploma population, 81% are enrolled in university, which is 43.5% of the total area population and of the 25% College Town population, 41% are enrolled in university, which is 10.25% of the total population. This is a total of 53.75% enrolled in university and S Apartment is only 0.4 miles away from the University of Florida. 

The Property:

Each unit is 2 bedroom and 2 baths which would be attractive to university students on a budget who can then either share with a roommate or partner to reduce their cost. The apartments are also recently renovated which would be attractive for people to hang out in their apartments with friends watching sport games or listening to music. 

The Amenities:

  1. 25 x 50 heated pool: This would be attractive to the young university population who would want to host parties there

  2. Central heat/AC: This is attractive in the hot and humid Florida weather, especially for students who are spending time in their apartments studying

  3. Parking spaces: Out of the 50 bedrooms (50 people), there are 45 parking lot spaces. This would be nice for the university population who may want to drive home, drive to concerts, go to their yoga class etc. Most likely most people won't own a car so 45 spaces should be more than enough.

  4. On-site laundry facilities: This is similar to a dorm experience, where people can get their laundry done within the apartment complex.

  5. Utilities: Tenants pay for their own utilities, but they are able to save by splitting rent with their roommate.

The Location:

It is located within walking distance of the city's entertainment and shopping district, which brings convenience to college town people who enjoy eating out and for dorms to diploma people to find entertainment on weekends. It is also conveniently close to the university and sits nicely between the 2 areas. 

Question 2:

What is your opinion of the location and surrounding neighborhood of the property and what factors did you consider in forming this opinion?

My answer:

The Location:

It is located within walking distance of the city's entertainment and shopping district, which brings convenience to college town people who enjoy eating out and for dorms to diploma people to find entertainment on weekends. There are a lot of restaurants within walking distance from S Apartments which is convenient for the college town population. It is also conveniently close to the university and sits nicely between the 2 areas. 

The Surrounding Neighborhood:

The market study of comparable properties in the market area shows a relatively low vacancy rate at an average of 5.96%. They also have comparable rents at the average of $725/month. 

Question 3:

Based on the limited amount of data provided, do you think the rental rate indicated in the offering brochure is achievable? What did you base your opinion on?

My Answer:

I think that it is achievable based on the market study of comparable properties in the market area and relatively low vacancy rates due to good location fit for the population there. 

(I'm not sure how to give an answer with more depth based on DCF Financial Analysis or Operating Statement and would really appreciate some help with this one!)

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