All Forum Posts by: Account Closed

@Luis Concepcion - I'm in the process of learning the syndication business as well.  I have ten plus years in multifamily valuation and have looked at/appraised apartment complexes around the country.  I would spend a lot of time of learning the following:

-How to value apartments

-How to create value and re-position these assets. Multifamily properties are primarily valued using the income approach. The more you can increase the NOI, typically, the higher the value will be. If you can identify ways to increase income and/or decrease expenses, this is where true value can be accomplished in this space.

-How to analyze neighborhoods, markets, and the competition to see where your apartment fits in terms of price, value, etc.  

-Learn what typical expenses are for multifamily properties.  A lot times, smaller operators will provide you with limited or partial financial data.  You need to know what's missing and what those expenses would be under your ownership.

This is only scratching the surface but I hope it helps.  

Hi @Tom Ayd, thanks for introducing yourself.  I too have been involved in affordable housing for the past 10 years.  I work on the valuation and market research side of the business.  

Thanks @Logan Drew! 

Those are good spots but as @Logan Drew indicated, they are a bit pricey.  However, coming from Southern Cal you probably won't think so.  You may want to check out Lawrenceville, Bloomfield, Garfield, and Friendship as well.  Lawrenceville and Bloomfield are both good locations but can also be pricey (not quite at the level of Shadyside though).  I would also check out North Point Breeze.  This neighborhood is adjacent to Shadyside, East Liberty (tons of new development), Wilkinsburg, and Homewood.  Wilkinsburg and Homewood aren't good areas.  Wilkinsburg is starting to improve though.  North Point Breeze is very close to Bakery Square (newer development, Google's Pittsburgh office, etc), it's on the East Busway so it's convenient to downtown, and prices are still relatively reasonable given it's more of a traditional neighborhood.  Additionally, you can take advantage of it's proximity to all of the nightlife, restaurants, etc. in Shadyside and East Liberty without the price.  

I agree that it will be much easier to break into real estate investing in Pittsburgh rather than SD given the price points.  What area of the city will you be working in?  Given that you plan to house hack, I think figuring out which neighborhoods are convenient to work, offer decent 2-4 units at reasonable prices, are safe, and offer the amenities (restaurants, night life, shopping, etc) are going to be important to you.  I agree that finding a good real estate agent will benefit you in deciding on an area...as well as talking with other people in the market that don't have a vested interest in making money from a sale.

I'd be happy to discuss some of the neighborhoods or any other questions you may have about Pittsburgh.  Feel free to PM me.

In terms of number of buyers, a single-family home could be sold to another investor or an owner occupant, whereas multifamily buildings are typically sold to investors.  If the area starts to become less desirable, it will likely be difficult to sell any type of real estate.  

I would probably focus on the area and the local economy a bit more than the type of building.  If you focus on the following, you can probably reduce your risk and not have to worry about the area getting worse for a long time:

-access to public transportation, job and population trends, rent growth, vacant housing stock in the area, quality of school district

For example....If you're planning to invest in a town with one large major employer (say a manufacturer) and that employer goes out of business or has a mass layoff due to an economic downturn, it doesn't matter if you own single families or multifamilies......there isn't going to be anyone to rent your units or buy your property.  99% of the time, a diversified local employment base is better (or atleast one that has many employers that are downturn resistant - health care, education, government, etc.) 

These are the reasons I would focus more on the market dynamics than the size of the asset itself.  From an economies of scale aspect, you are typically better off buying multifamily buildings.  However, this isn't always the case.  Hope this helps. 

@Nicholas Lohr I'm not sure that this type of data exists, although I could be wrong.  REIS is a good data provider that illustrates local economic data along with sale, cap rate, vacancy, and rent growth trends in local markets.     

I think you may want to start with the size of the asset you're looking to buy (10 unit buliding, 50 unit, 150+ unit) and the capital you have for purchase.  This will immediately weed out many markets based solely on what you can take down.  I think when purchasing multifamily there are many important factors: population growth, job growth, landlord or tenant friendly city or state, vacancy trends, rent growth trends, etc.  Are you looking for a value add deal where a substantial return could be made by re-positioning the property or do you want to purchase more of turn-key property with management in place?  I believe your strategy will limit the markets you may want to enter.     

I would probably leave it filled then. 

In valuing this property I wouldn't worry much about the retained earnings or mortgage interest expense.  However, they do seem suspect.  These line items are investor/company/financing specific and don't really speak to the operations of the property or help in determination of the current value.  You will still want to use the income approach in valuing the property.

In coming up with an accurate valuation for the property, you need to drill down on the income and expenses for the property's operations and then capitalize that figure using an appropriate cap rate for the area and product type.  Cap rates are a whole other discussion.  Yes, financing will be part of your financial model but the terms of your debt will be different from the current owners.

The financials will have a lot of information that you may not need.  Are these audited financials or some other format.  I'd be happy to take a quick look to help guide you through what information is most relevant.  

PM me if you'd like to discuss. 

The physical vacancy rate is 20 percent but you'll also want to know the economic vacancy rate which includes both physical vacancies as well as occupied units that are not paying rent or are behind in rent.  I think you're right that this property is being mismanaged, and if it is, it's likely the owner is not collecting all of the rents.  

The laundry contract doesn't seem favorable to the owner.  This can be renegotiated or you could change companies.  The property should make some money from laundry facilities.  

In regards to the pool, do most of the comparable properties in your market offer pools?  I would complete a market analysis looking at amenities, appliances, unit sizes, etc. at some properties close by that will be competitive to determine what amenities you should offer.  Obviously, if your property attracts small families with children a playground would be beneficial.

You'll want to value the property based on the NOI. Are the financials good or is this a mom and pop landlord with limited/poor financial records? I would definitely verify everything and reconcile it with bank accounts, utility providers, etc. You may want to complete a capital needs assessment or at least get bids on the work that will need to be done. This can help substantiate and justify your price.

How are you planning to finance this deal?  I would talk to lenders sooner rather than later as this property is not at a stabilized occupancy rate and that will be a concern for banks.

Good luck!  

I've used List Source to pull this information.  You can use criteria such as zip code, number of units, last sale price, assessed value, etc. to pull the types of buildings you are looking for.  The cost of these lists is relatively inexpensive.

You can also search for apartments and then reference the assessor's website for the owner and address if you are planning to send them a direct mail letter.  Personally, I think this takes way too much time and purchasing the list is cheaper.

As you mentioned too, sometimes the local assessor's office can help you out (typically for a fee).