I am currently trying to identify what my ideal parameters are for identifying/buying multifamily properties. Since I am brand new to this side of real estate I was hoping that some of the vets out there might share with me your ideal parameters or checklist that you use before deciding to make an offer?
1) Class type- B/C class
2) ideal property size- 16 or more doors
3) Vacancy rate- nothing below x%
4) Absorption rate-
5) Cap rate / coc return-
I realize that everybody will likely have different goals for investing and will be in different markets so this will drastically change certain answers to the above but if you could also share your actual numbers alongside the checklist this will be very helpful to me.
Any information or feedback is much appreciated!
Everybody will have a different set of parameters based on their goals, experience, resources, etc.
Hitting on what @Brian Garrett said, I only look above 200 units in the B and C class.
At least 75 units, B/C asset class, in the Southeast or Midwest with a good value add opportunity
70-150 units B/C properties in DFW and surrounding areas.
Target ROI for investors is 100%+ over 5 years (10%+ cashflow & 50%+ capital gains) assuming stable economic vacancy of 10%-12% with 3% rent inflation and 7.5-8% exit cap rate.
@Nick B. thanks for being more specific. This is the type of answer I was aiming for.
@Brian Garrett thanks for the reply. Ultimately I am trying to gather data on approaches, methods and/or hone in on any patterns. Regardless of the different answers/approaches, I am trying to get insight into what the more seasoned multifamily investors are using for their checklist to identify their ideal property. Even if the specific parameters are different than mine based on goals, resources etc... it is interesting to see what specific things people consider to be an important identifier on their checklist.
Are you planning to raise equity from investors, or fund this yourself? You may have different parameters and success metrics than your investors might. Typically investors are going to want to get their money back in a relatively short amount of time (3-5 years) while you might be looking for long-term cash flow--those are completely different goals and will change your criteria/asset type quite a bit.
We look for Value-Add MFH:
Class: B- / C+
Size: 5 - 60 units
Vacancy rate: PREFER higher vacancy. Avoid 100% occupied.
Population: Net influx of population in the metro area over the past 20 years
Employment: At least 3 major diverse employers within a 20-mile radius
Cap Rate: We don't buy on cap rate, since we are looking for upside post value-add. But we try to sell at 5.5-6.5% cap
Upside potential: At least 30% after all capex and holding costs are factored in
@Yousif Abudra Thanks for the response. Question... Why exactly do you avoid 100% occupied? And if you are looking for higher vacancy what is vacancy rate do you avoid?
@Spencer Gibson We are a value-add fund, so we buy using cash, improve, stabilize, and sell the turn-key investment after 18-24 months. With 100% occupied properties, there is less room to add value and capture upside.
As far as vacancy, the higher the better. For us, 100% vacant properties are very attractive if the location is right.
@Yusef Abudra, it really depends on your particular area. In California (Bay Area) it is very difficult to find viable properties that fulfill your parameters. We are always looking for value add properties with deferred maintenance issues (the more the better). Certainly class B-C buildings (in working class neighborhoods). We like fully occupied properties for the immediate cash flow (we can always move problem tenants out). Ideally, if we find a property with a GRM lower than 10X or a high CAP it is worth a 2nd look.
@Andrew Campbell good point! I will be raising money and buying for myself. But most of what I will be doing is raising capital from other investors for the foreseeable future.
@Marty Carbajal Great to see a fellow local investor - I am in San Ramon. Yes, you are right, which is why we spend very little time looking seriously in CA. We find them occasionally, and of course pounce on them, but most of the time it is out of state.
Depends on hold period.
Short Term (1-2 Years)
Med Term (3-5 Years)
Long-Term (5+ Years)
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