All Forum Posts by: Spencer Gray

It depends on the market and your target demographic. The plus side is that your $/sft is typically the highest compared to other units while the nominal rent is cheaper than most 1 bed units.

The downside is that turnover can be higher as studio residents tend to be a bit more transient adding some additional turn expenses. 

I would take a hard look at comps of other studios in your immediate sub market.

SF can be good individual investments but as @Brian Briscoe laid out it is very hard to scale if scale is aligns with your goals (it doesn't have to). For myself and others I know in the business (targeting 100+ unit assets $10M+) the net worth growth is more exponential compared to the more linear growth I saw when I was flipping/SFH rentals.

@Patricia Steiner I totally agree on quality vs quantity. My problem always was finding an efficient way to scale with one unit at a time. It takes only a little more effort to buy or sell a 100 unit apartment building than it does to buy a single family home. The amount of time and energy it takes to find, analyze, inspect, buy, manage, rehab, and then sell 100 individual assets is significant, compared to one building with 100 units. Just like a SFH, in multifamily you can buy something cheap in a bad market and rent it to whoever without a credit check or you can buy a high class asset in a great market and rent it out to the best credit worthy residents out there - all from one centralized office with onsite management taking a 3.5% fee instead of 10%.

@Stacy Adams Just keep in mind larger multifamily investing often involves larger teams and partnerships compared to single family and smaller multis. There are some great ways you can partner with others with a track record by bringing something of value to the project in order to get some experience and participate in larger deals. 

@Joe S. Check out the blog I just posted on BP - it's all about how to get into multifamily syndication and get past the barrier to entry by being a co-gp.

@Joe S. Totally makes sense. It has to be the right partner and any relationship should be established slowly. 

I've been able to form some great partnerships with great partners that has allowed me and my company to accelerate and scale at a pace that would be nearly impossible alone in the same time frame.   

@Joe S. 

Perception is reality and if you, like many of the posters on this thread, believe that larger multifamily deals are harder then your mindset is going to prevent you from executing. Focus on the solution instead of the problem. 

The truth is a 100 unit project is easier to do and has more benefits than a 10 unit deal. The financing is better, terms are better, more liquidity in the market, more economies of scale, easier to manage, value is forced at a higher velocity due to lower cap rates, and I could go on and on. This is why investors who get to the level of doing larger deals don't turn back and do smaller ones. 

@Todd Dexheimer is 100% correct. This business is a team sport (as are all real businesses or serious endeavors) and it's all about identifying the pieces of the puzzle and taking the correct amount of action to put those pieces in place. 

Identify your strengths and what you bring to the table and bring on partners to fill in where you aren't sufficient. If you are opposed to working with others and want to go solo, your success potential is severely limited.  

Can find/underwrite/win deals but can't raise all the capital? Bring on a capital partner or two.

Have the capital but no deal? Bring that capital to an experienced operator.

Don't have the net-worth required to guarantee the loan? Bring on a KP with a healthy balance sheet. 

Don't have all the systems and operations? Bring in a JV partner that does.

I would rather get 25% of the GP of a 200 unit deal than 100% of a 10 unit deal all day long. 

However, I also agree with @Annie Dickerson in that it comes down to what your goals are. If you like SFHs there is nothing wrong with that. If you believe that multifamily is a qualitatively and quantitatively superior investment vehicle, as I do, then it's a matter of making a plan and executing it. 

If I were you I would find 2-3 operators/sponsors/syndicators to partner with. I would invest $75k in 10 deals or $150k in 5 deals. Pick best in class sponsors/operators and a strategy that aligns with your goals. I would spend as much time if not more underwriting potential operators than the deals themselves. 

I don't like the moratorium any more than any one else here but calling a temporary eviction moratorium "nationalization" is simply hyperbolic and reactionary. 

You're definition of "Nationalization" essentially means that the apartment industry has been nationalized for decades - Fair Housing Act, ADA, etc. There has always been rules about who you can evict and for what reason. The reality is this is a highly regulated industry so there shouldn't be so much surprise. 

It's not like you will never be able to evict again. Just tell residents that the eviction is delayed and will be enforced as soon as possible. It's a temporary delay.

Additionally, if you are benefitting from Government backed debt, that is artificially cheap because of the implied guarantee, then you have to accept the strings that come along with it. Now if you want to argue that the government should stop propping up the real estate industry and stop guaranteeing mortgages, go right ahead, but just be ready for prices to collapse. 

A 15% project level IRR doesn't leave a lot of room for investors and the sponsor to both make much of a return. I would take a deeper dive into the plan to see if you're missing something. Can you build more than 100 units? Add retail? Add other income producing sources such as storage, covered parking, etc?

@Nathaniel Marcellous Jr. If you are simply trying to determine a sales price today you may not need to do full proforma or to model future cash flow. 

The most straight forward method is to take the in place NOI (net operating income) and divide by the prevailing cap rate for the asset type in your specific market. You can ask lenders, appraisers, brokers or look up the CBRE cap rate survey to determine your markets cap rate. You can also look up recent transactions and compare their sales cap rates and their price per unit as some buyers/sellers analyze a property by using the two metrics.

There are may ways to back into a properties NOI, cap rate, and value.

Cap Rate=NOI/Value

Value=NOI/Cap Rate

NOI=Value/Cap Rate

There are also back of the napkin methods that aren't always accurate but can give you a rough idea of the metric you are trying to solve for. One is the 50% rule, which is simply assuming that there is a 50% income to expense ratio for the asset. 

Let's say we're looking at a 100 unit property that all rent for $1000/unit/month including other income/fees for simplicity. That's $100k of revenue/month. Then take the 50% rule and you can estimate a NOI before capex and debt service of $50k/m or $600k/year. $600k(NOI) / 6% (Cap rate in your market) = $10,000,000 (Value).

If you are looking to do a more detailed proforma (absolutely necessary) I've heard the Michael Blanks SDA is a very good one, but it's also not difficult to build your own basic model in excel. The benefit of building your own is to have a complete understanding of all the financial levers and mechanics of a deal. I have used multiple "analyzers" and nothing compares to what my team and I have built on our own. 

It will be a challenge to achieve the same returns with lower growth, higher exit cap rate, more reserves and lower leverage.

It's possible if fire sales begin but I don't see that happening on a broad scale, more likely 5-15% reduction in price/25-100 bps of cap rate expansion depending on the market. 

If this tracks anything like previous recessions, which it may not, there may be 6-18 months of negative or flat rent growth followed by a few years of exceptionally strong growth in the 4-6% range 

We're focusing on the fundementals and by buying on actuals not proforma. Also with longer hold periods 7-10 years you can mitigate a lot of the risk. We're bringing economic vacancy down to 20% for the next 12 mo in some cases vs a normal 5-10%. We are still using 75%-80% leverage going bridge->HUD for now until Fannie and Freddie become reasonable again.

We are defering asset management fees if returns are not at the preferred return. Outside of that fees are as normal.

Still putting skin in the game like all of our projects.