What: A 9 Unit Apartment Building
Where: 420 E. 14th Ave. in downtown Anchorage.
How: Listed for sale at $779,000
This is a commercial property. Banks/Lenders consider an apartment building that has five or more apartments to be commercial. Any property with four or less apartments is considered residential. This is a HUGE distinction. If you are a first time investor – you very likely will want to go the residential route – as you can access low to zero down payment loan programs with the lowest interest rates (currently around 3.75%).
The greatest benefit of buying something that is commercial like this is scale. Here you get nine apartments, and typically commercial lenders will allow you to bring as little as a 20% down payment. We always consider seller financing when possible – but very often sellers just want to be cashed out.
So – assuming you get a new loan – and pay the list price (negotiable) – for about ~ $155,800 down plus any closing costs (negotiable) – you could be the proud owner of 420 E 14th Ave. When you buy a personal home – lenders care primarily about your income, your debts, and that ratio (DTI: Debt to Income). When you buy a commercial property, it is expected that as a business – this property will pay for itself – so they look primarily at the income, and the expenses, and that ratio (DSCR: debt to service coverage ratio).
I went to tour this property here in late October, 2019. Seeing the boiler room, an occupied apartment, a vacant unit, and the grounds. The property has been fairly well maintained – I’d say some new kitchen countertops, better paint, flooring, and lighting upgrades and you’d really polish this beauty into it’s former glory. Across nine apartments that can add up to a lot of work – but this is rentable as is – and you could budget to do one apartment a year.
As it is – the numbers work better than many other properties for sale at present. This is not something I am representing the seller on – I would represent the buyer in this or another purchase scenario.
The rents: average $1200 a month with tenants paying electricity. Many of these are 3br apartments that could increase rent.
The expenses: Landlord to pay the rest – trash, water/sewer, natural gas, insurance, etc.
The income – after expenses – including mortgage payment – this should pay out at least a 15% return on investment as cash in your pocket. That means if you put ~$156k down, you would get ~$17k a year back in cash managing yourself. This does not take into the benefits of paying down the loan (builds equity) or the tax benefits of deducting depreciation, or the benefit of appreciation. Each of those should add to your real earnings to be the equivalent of over 20% each year.
This includes $15,000 a year budgeted for maintenance and improvements (to get one of those apartments improved per year). This should allow you to raise rents to $1250 each on average – increasing your cash flow, and property value.
CAP Rate: This looks to be nearly a 9.5 CAP. Some on BiggerPockets.com will say that there is no such thing as a good CAP rate. For Anchorage – this is a good CAP rate.
The neighborhood: This is “West Fairview.” If you go two blocks east you hit Gampbell/Ingra and it is rough. The Black Angus Inn needs to go Anchorage. Mayor Ethan Berkowitz – let’s get on it! However if you go two blocks west you start hitting a very desirable area butting up to the beloved South Addition. If you are on the block here you’ll see a nice new home directly west of this property and new townhouse style builds directly north on E 13th Ave. Nobody knows the future – but all signs point towards this area continuing to improve.
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