Commercial Multifamily listings advertising 100% occupancy

Multi-Family and Apartment Investing
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Commercial Multifamily listings advertising 100% occupancy

Vincenz DeCastro
Austin, TX · Member since 2019 · 18 posts · 15 votes

Long story short, I'm new to the REI world and have been steadily approaching my first deal. I've been analyzing multifamily commercial listings seeing apartments from as little as 8 units to as much as 200 units throughout the greater Austin area. I persistently come across an overwhelming amount of properties advertising 100% occupancy with minimal-mild value-add repairs to be had. In analyzing, I would often calculate a 10% vacancy into my expenses (shout out to Michael Blank), estimate repairs, adjust rents, and usually wind up with very little in return in regards to cash flow and ROI. The ARV leaves a good amount of money in the deal when refinancing which is not ideal in regards to growth. Curious to know, assuming these occupancies are high and stable, if people are purchasing matured properties with slim margins as so and if they are able to attain good ROIs within a 5yr period. Seems easier to invest in bonds. Thoughts?

I'm looking to reposition smaller sized apartment complexes as I am aware that there is a lot of value to be had from properties with a higher rate of vacancies and underperforming mgmt to begin with. I plan to just continue hunting down more promising deals to analyze and offer on if promising but was wondering if what i'm seeing above is typical in the market. 

Thanks in advance! You all rock!

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Omar Khan
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
7y

@Vincenz DeCastro I'd be very happy to find bonds (or a bond ETF) yielding 6%-8% CoC all day every day. The only problem is that they don't exist.

You are correct that margins are becoming slimmer. But you are also happening to look at a city - Austin - which is one of the highest growth, most attractive places to live in the country. Money is pouring in for a reason and that's because relative to other areas Austin is offering better prospects. 

You could buy a cheaper place in the middle of nowhere and get nowhere. You will always pay a dear price investing in high growth markets but more often than not you will come out on the other side very happy (in a few years).

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  • Fernando Landeros
    Robstown, TX · Member since 2017 · 23 posts · 4 votes
    7y

    @Vincenz DeCastro, just curious where are you getting these deals from?

    1Reply
  • Charles Seaman
    Apartment Syndicator · Charleston, SC · Member since 2017 · 519 posts · 631 votes
    7y

    @Vincenz DeCastro We are definitely in a seller's market in most parts of the country, so poor returns are typical in many markets due to the high purchase prices that sellers are asking for (and getting in most cases).  If you're looking in any major market in Texas, this is only amplified because Texas seems to be the preferred stomping ground of many investors due to the favorable laws.  Accordingly, that's why most people are looking at many deals and passing on most of them, myself included.  There are many ways to add value to properties, but doing a major re-positioning is often considered the hardest and most risky, especially if you're just starting out.  Do you have a construction background?  If you'll be using your own capital and not syndicating these deals, do you also have enough capital to pay all of the carrying costs while the renovation is going on and the property has no income coming in?

    0Reply
  • Charley C.
    North of Houston · Member since 2018 · 349 posts · 181 votes
    7y

    @Vincenz DeCastro  you got a lot of good questions that go all over the place so here is my best try: pm and I would be happy to tell you more. That's a loaded question requiring a longer answer

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  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    @Vincenz DeCastro I'd be very happy to find bonds (or a bond ETF) yielding 6%-8% CoC all day every day. The only problem is that they don't exist.

    You are correct that margins are becoming slimmer. But you are also happening to look at a city - Austin - which is one of the highest growth, most attractive places to live in the country. Money is pouring in for a reason and that's because relative to other areas Austin is offering better prospects. 

    You could buy a cheaper place in the middle of nowhere and get nowhere. You will always pay a dear price investing in high growth markets but more often than not you will come out on the other side very happy (in a few years).

    4Reply
  • Vincenz DeCastro
    OP
    Austin, TX · Member since 2019 · 18 posts · 15 votes
    7y

    @Fernando Landeros a couple of brokers at this time and using MLS and loopnet every so often, even if its not a deal to close on, using them as practice to continually analyze properties

    @Charles Seaman Texas is competitive around these major cities. Not construction experience at this time but not looking to do major repairs on first deal if i can help it. Will be using my own capital and syndicating the deal to obtain funds and have a good amount of reserves. Have been connecting with people and potential partners with more experience to help along with the process. Yes i'm new but I have to start somewhere and after evaluating my options, this deal is meaningful place for me to consider starting at.

    @Omar Khan Thanks for the insight. Austin would be convenient but I have been looking as far as Georgetown to New Braunfels. Looking to start looking in San Antonio and DFW just expand my options. 

    1Reply
  • Charles Seaman
    Apartment Syndicator · Charleston, SC · Member since 2017 · 519 posts · 631 votes
    7y

    @Vincenz DeCastro You're absolutely right about starting somewhere.  That's the only way to get ahead.  Minor re-positionings can be a lot easier, so if that's what you're focusing on, then it sounds like you're in the right direction.  The best recommendations that I can give you are to really know your market well and also to be very selective on the deals that you do get involved with, meaning that you'll likely reject a substantial amount of deals that you look at.  If you want to chat further, I'm glad to offer you any assistance that I can.

    1Reply
  • Caleb Bryant
    Rental Property Investor · Huntsville, AL · Member since 2015 · 401 posts · 309 votes
    7y

    @Vincenz DeCastro Austin is a pretty tough market, so yes people are overpaying and you’re not crazy. At the same time, 10% vacancy is probably not accurate to your market, so why are you underwriting with that number? Conservative is good but if your market is consistently at 95% conservative might be underwriting at 93% and checking to see how things looked occupancy wise back in 08-10 to double check bad scenarios.

    2Reply
  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Vincenz DeCastro:

    @Fernando Landeros a couple of brokers at this time and using MLS and loopnet every so often, even if its not a deal to close on, using them as practice to continually analyze properties

    @Charles Seaman Texas is competitive around these major cities. Not construction experience at this time but not looking to do major repairs on first deal if i can help it. Will be using my own capital and syndicating the deal to obtain funds and have a good amount of reserves. Have been connecting with people and potential partners with more experience to help along with the process. Yes i'm new but I have to start somewhere and after evaluating my options, this deal is meaningful place for me to consider starting at.

    @Omar Khan Thanks for the insight. Austin would be convenient but I have been looking as far as Georgetown to New Braunfels. Looking to start looking in San Antonio and DFW just expand my options. 

    If you're holding long-term (5-7+ years), Austin should handily beat most other parts of the country where you will  buy more land area but it won't be half as valuable. In other words, there's a reason why 2 bedroom condos in NYC/LA cost more than most mansions in Texas.  

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y

    Investors always talk about buying apartment complex, doing rehab, stabilizing and forcing appreciation then selling for profit. What nobody ever talks about is who is buying these properties and how they make the numbers work. Those buyers seem to be absent from BiggerPockets or not talking at least. There is also a whole industry of new construction multifamily where nothing is distressed and there is no "value add". Most those buildings even sit half empty for months as they try to fill them. 

    Investing comes in many forms and many strategies. It just so happens the buy/rehab crowd is much stronger on BP. That could be because we have so many new investors with low cash, so they need these strategies to get started. 

    People who have lots of cash want to skip the "rehab and stabilizing" and go strait for a stabilized or new property. It takes lots of time and effort to turn a property around, so if you can afford to buy it ready, it saves the headache.

    As far as those 100% occupied properties. That may be occupancy today, but if you look at vacancy over 2, 3, 4, 5 years it is doubtful it was 100%. That marketing may be a little deceitful so keep that in mind.

    2Reply
  • Vincenz DeCastro
    OP
    Austin, TX · Member since 2019 · 18 posts · 15 votes
    7y

    Thank you everyone for the valuable insight, advice, and perspective!

    @Caleb Bryant Great point. I'll have to discuss with some locals at my next REI meetup what numbers they are coming across and using to underwrite around town.

    @Omar Khan These are true facts. From what i have come across and learned, cash flow is best for these properties and betting on appreciation is a risky place to invest on. Plus I'd like to be able to pull some money back if possible for the next deal (BRRRR). I may start spreading out my search to other markets for more potential cash flow.

    1Reply
  • Mike Krieg
    Investor / Syndicator · Austin, TX · Member since 2015 · 366 posts · 220 votes
    7y

    @Vincenz DeCastro @Omar Khan One of the other issues in Austin is that the permitting here is way behind. New projects can be delayed up to a year in some cases (retail) which is making supply tight in a market that is seeing explosive growth. Agree with Omar on Austin as a growth play. This is a place where you buy something and feel sick like you're overpaying on the way to title, but after a few years you're very happy with the appreciation. Not a cash flow market, but it hasn't been one in many years. At least, that's true for most of our submarkets. 

    2Reply
  • Vincenz DeCastro
    OP
    Austin, TX · Member since 2019 · 18 posts · 15 votes
    7y

    @Mike Krieg That actually confirms a recent Austin market trend report I had recently read. I guess that's what a lot of my analysis has been hinting at, Austin is likely not a cash-flow area at least in regards to large residential REI. That or I need to get more creative in finding deals.

    0Reply
  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Vincenz DeCastro:

    Thank you everyone for the valuable insight, advice, and perspective!

    @Caleb Bryant Great point. I'll have to discuss with some locals at my next REI meetup what numbers they are coming across and using to underwrite around town.

    @Omar Khan These are true facts. From what i have come across and learned, cash flow is best for these properties and betting on appreciation is a risky place to invest on. Plus I'd like to be able to pull some money back if possible for the next deal (BRRRR). I may start spreading out my search to other markets for more potential cash flow.

    If you want to pull your money out, then you will have to be in high appreciating markets i.e. take less cash flow. How else are you going to refinance at a higher valuation? 

    0Reply
  • Tj Hines
    Specialist · Tampa, FL · Member since 2012 · 933 posts · 492 votes
    7y

    @Vincenz DeCastro we are definitely peaking right now in this market. Favors the seller totally. Its all a numbers game. Right now we are seeing an avg ratio of 100, 150 maybe even 200 deals to 1. It's all about being persistent in your search. It may even take you broadening your horizons into different markets whether it be in your own state or out of state. Depending on your business model maybe secondary or tertiary markets? Continue to build rapport with brokers. Check out your local REIAs and network with wholesalers. They come across off market deals from time to time. Most wholesalers don't know how to evaluate these deals. So they tend to toss those leads. There's opportunity there. You can also use list brokers as well to compile a list of off market owners.

    2Reply
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