Would you invest in this deal ?

Question

Would you invest 5m in a Multifamily portfolio acquisition that offers 4% annually with the chance to increase to %6, an interest of 15 - 25%, and a 40% return?

Charles Seaman · Answer

@Kenneth Cunningham Jr. As a former New Yorker, I feel qualified to say that the NYC market is very unique.  That probably isn't a bad return in NYC for multifamily properties as many deals are heavily weighed towards appreciation, but I personally would stay away from it at this point solely because of the tenant/landlord laws in NY and the fact that property values are likely to drop quite a bit more due to the negative impact from the pandemic.  I have a lot of friends that keep telling me to come back and buy in NYC, but I don't see the value yet.  After some more bleeding, there might be good opportunities, but we're not there yet.

Andrew Schutsky · Answer

Truthfully, I'd want MUCH more information than just the projected returns and cash flow estimates to say yes or no to a dael.  Importantly, I'd ask for:

-Who is the managing team and what is their track record?

-Property location and submarket specifics? What are typical vacancies for the area? Is the area growing in terms of population and jobs? Why invest in this area?

-What is the business plan for the asset? What specifically will they do to increase the value of the property? Are they relying only on natural market appreciation? What are the projected rents and are they in line with comps? What are the cap rate projections for exiting the property?

-How long is the projected hold period?

-What does the team see as the risks?

If there isn't significant thought behind these answers that would be a quick no for me.

Bjorn Ahlblad · Answer

In order for the deal to work the bet is that the next 10-20 years will be like the last ten and there is no evidence pointing there at all. Especially with the freeloader tenants and the political climate.

Justin Goodin · Answer

@Charles Seaman Great feedback. Thanks for sharing this.

@Kenneth Cunningham Jr. As others have stated, there seems to be a lot more information to find out other than just the returns they are claiming. In my opinion, I would be very cautious about any NYC investments.

Charles Seaman · Answer

@Kenneth Cunningham Jr. I'd be very reluctant to invest in it.  The cash flow is low, so it seems like the 40% return would be heavily dependent upon appreciation.  Is the portfolio located in NYC?

Kenneth Cunningham Jr. · Answer

@Charles Seaman

Yes it’s in NYC, and correct it is based off appreciation. What do you consider would be a sufficient annual return?

Eric Johnson · Answer

I am not from NYC and do not have experience in that market, but following the principles of investing, I think Charles has good points & are something to think about. Especially with a tier 1 market like NYC...

Would you invest in this deal ?

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