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Acquisition Criteria
The following criteria is used to identify undervalued multifamily properties for acquisition, value optimizations, management and disposition.
Market Segments
- Age: The 18-35 year old market segment is 22% of the U.S. population
- Income: Renters who earn $40,000 or more annually
- Price: Where rent is 30% or less of the median income
- Retiring Baby Boomers are scaling down and enjoying maintenance free multifamily living
Property Criteria
- Property Type: Multifamily residential apartments
- Construction Type: Pitched roof construction preferred
- Occupancy Rate: Properties above 80% occupancy with the exception of properties that require renovation, providing properties are in prime locations and present value-add opportunities
Target Values
- Size and Price: 50+ units in the $2MM – $50MM range
- Returns: 7-10% Cash on Cash, Minimum Debt Service Coverage ratio of 1.4
- Type: C- to B+ properties located in C- to A areas
- Property Vintage: 1990 or newer
- Location: Emerging market areas with indicators for strong near and long-term economic growth
Emerging Markets
How we categorize emerging markets
- Steady Population Growth: People consistently moving in, rather than leaving the area. A five-year analysis is the standard time period we consider to measure current steady growth and potential growth.
- Steady Job Growth: Regions where jobs are being created and moving in rather than lost and the median income is above national average consistently
- Property Values and Property Rents: Property Rents and values rising are targeted in thriving communities
- Local Government and Policy Shifts: Local government dedicated to attracting jobs
- Market Absorption: Markets starting to absorb oversupply
Market Indicators and Market Research
We analyze many indicators through extensive research, to develop a clear business plan, favorable strategy, mitigate risk and research includes the following areas:
- Job Growth Report
- Population Growth Data
- Path of Progress Reports
- Local Economic Reports & Trends
- Chamber of Commerce Insights
- Additional Market and Economic factors
Acquisition Practices
Due Diligence
Each asset undergoes a thorough due diligence process to confirm the physical and legal status of the property and to confirm valuations to ensure achievable investment strategies.
Assessment
Early in the asset evaluation phase, the debt and equity financing strategy is developed based on a number of factors such as property type, magnitude of renovations, expected hold period and investor objectives. Each asset is typically held 5-7 years depending on its exact business plan.
Investment Discipline
Asset selection involves a systematic, routine evaluation to identify favorable demand characteristics, i.e., job and population growth, demographic shifts, supply absorption rates and positive local legislation.
Markets with supply constraints receive most favorable underwriting. Markets with signs of oversupply such as surplus land, changes in zoning and increases in building permits are avoided.
Value-Add Strategy
Think of it as a business rather than a building. The more income it generates, the more it is worth. When we purchase an apartment complex, we are looking for specific opportunities to increase the cashflow in different areas. These are called “Value Plays” or “Value Adding Components”.
Value Plays We Capitalize On
- Inefficiencies due to owner self-management
- Lack of supervision of management companies and underperforming operations
- Properties that have deferred maintenance
- Properties that have a high vacancies rate
- Properties that are below market rents
- Low crime areas
Common Value-add Strategies Implemented:
- Improve curb appeal by improving landscaping, adding dog parks, carports, etc. Residents will pay more when a property is in better condition and has amenities.
- Purchasing a property that is 10% or more under current market rents. This gives us the opportunity to increase rents and immediately increase the value of the property.
- Implement a water and sewage bill-back system to charge the residents for actual usage. Most apartment owners pay for all the water. When we bill back the residents it helps offset expenses and increase the cash flow. Through this system residents tend to become more frugal and will decrease overall operating expenses.
- Improve unit interiors with new paint, appliances, countertops, and floors
- Adding a coin laundry facility to the complex
- Below market rents
Our Strategy
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