Multifamily Investing - Blog posts tagged in Multifamily Investing
I recently met with a first-time multifamily investor who was in the search phase for the perfect property. We discussed the importance of neighborhoods (i.e., location), current tenants, property classifications, and the many other considerations that go into such investments. Then, he made an interesting statement. “If I offer all-bills-paid, I won’t have to worry about anything else as much. Everyone likes having all their bills paid.”
While there’s truth in the statement, I found it to be a great opportunity to discuss the unique considerations that accompany such properties. Here’s a brief recap:
It’s not widely applicable. You can’t just choose any property and make it all-bills-paid; at least, not without considerable additional investment. All-bills-paid properties are designed as such, without meters on each individual unit. While you can turn a property from an all-bills-paid property to one that is not, and vice versa, there is an associated cost. So, it’s often best to purchase a property that is already setup to accommodate your planned pricing strategy.
Your pricing strategy will determine the type of tenants you attract. He was right when he said that everyone likes all-bills-paid. And, for this reason, all-bills-paid properties rarely have vacancies. Yet, the stereotypical tenant for these properties aren’t always on-time with payments, don’t always take care of the property the way they should, and aren’t likely to be loyal, long-term tenants. Understanding this as you go into the decision to offer all-bills-paid will at least help ensure you have realistic expectations of what’s...
There is no doubt, leaking pipes at your apartment complex are a nuisance. From residents to property managers to maintenance supervisors to owners, everyone is impacted when a property is leaking. Oftentimes, the thought of selling the property to get rid of the headache seems appealing. However, leaking plumbing is hard to hide, and chances are you will not be able to pass off the property without taking a valuation hit unless you get the pipes fixed.
If you are thinking of selling your property and are in need of a repipe, it is in your best financial interest to get your piping systems fixed before you list. With turnkey contractors who are able to quickly and cost effectively complete a repipe without moving out residents, selling a hassle free building will most assuredly increase the value of your property, which will typically offset the cost of the repipe.
Because new pipes (installed behind patched walls) have no curb appeal and an ambiguous correlation to increased rents, many property owners are hesitant to make this upfront investment before listing their property. However, inspectors, insurance agents, appraisers and potential buyers are sure to uncover the evidence if your property is leaking, and will either lose interest or submit a low-ball offer knowing the property has issues. By being upfront about the investments you have made (just like you would promote a new roof or renovated kitchens), promoting a recent repipe indicates to buyers that the property is well maintained and worth their...
One of the most important decisions you’ll make in relation to a multifamily property investment, other than deciding on which property to invest, is whether you will hire a property management team. So, why then would you make such a decision without having performed as much due diligence as possible?
It’s important to understand that just because a property management company has been in business for a while or has a large portfolio of properties doesn’t mean it’s suited to meet the very unique needs and demands of you and your property. Due diligence is a must in ensuring the needed alignment is there.
Why it’s important
A few reasons why you want to take the time to thoroughly vet any property management company with which you’re considering a partnership include:
Face value: The company you choose will essentially be your face to the world. The people they hire for the office and contract work will be an extension of the property’s brand and a representation of that brand on the job and in the community.
Everyday responsibilities: A property management company must be able to manage the daily business. Researching the company’s track record for approach and best practices is necessary to determining suitability.
Reputation. How well is the company known and what things, good or bad, are said about it? What do online reviews look like and how likely are they to be from credible sources? When calling on the list of provided references, what is the overall consensus...
In 2008, this was a headline we read: “It is the Best Time in 30 Years to be Investing in Apartments.” Fast-forward 7 years and this headline just appeared in a June article on NJ.com: “Apartment Buildings Offer Strong Returns on Investments.” Why so little change? Because, while investment property ownership typically generates about 7 percent, multifamily has generated somewhere in the neighborhood of 10%-18% over the past 5 years (Source: NCREIF Property Index).
But, before you go jumping into what you expect will be the most profitable investment of your career, you must first understand that these are averages and, like everything else, a property can flop if your investigating skills aren’t as shrewd as your investing skills. What you need, at a very minimum, is a feasibility study, to include the following components:
The property's income and expense statements
Area demographics and growth projections
Comparable properties and suggested amenities
Market analysis based on projections and comps
Estimate of total cost of suggested improvements
Timeline from purchase to projected solvency
Feasibility studies look different depending on who puts them together, but should be comprehensive and address the needs of prospective investors, renters and the local community. In addition, it's a good idea when looking at comps to put together a cost analysis per square foot to ensure you pay a fair price for a viable property. Comparing local rents will also help you see where rent should be increased or amenity value should be added to the property.
The Freddie Mac Multifamily Midyear Outlook for 2014 contains some points that desperately want to be positive, paired with some estimates and forecasts that paint what could be a very different picture for the multifamily housing market. The take-away seems to be that we should expect volatile market conditions to continue into the next year or so, prime time for investors to do minimal capital improvements in preparation for eventual increased market demand.
The report reveals that, by all estimates, more than 3.9 million new households should have been formed during the Great Recession, weren't. Whether that's a result of the shifting cultural landscape or symptomatic of a “failure to launch” generation, prognosticators tend to assume that the trend won't continue and that Millennials will start setting up house on their own as they find jobs. Younger households are more prone to renting, especially now that housing starts are low and home loans are harder to get.
Freddie Mac's Steve Guggenmoss says multifamily investors should expect to feel a pinch in the next few months as occupancy rates drop. In the face of such guarded optimism about those Millennials finally “launching” and getting their own jobs and places to live, that warning looks more like the agency is taking a “wait and see” approach to what's coming down the pike for multifamily housing. Basically, there are two possibilities for the market:
Scenario 1: Steady Economic Recovery
Millennials currently living with their parents get jobs, keeping a 13-year-low occupancy rate near...
There is a lot in the news lately about how great the market is for the acquisition and disposition of multifamily assets. You see the big players out there “wheeling and dealing” getting in on the action and proudly announcing their companies being assigned new properties in receivership. But no one ever talks about what happens to the onsite team caught in the middle. No one ever discusses how they weather the storm, the upheaval of not knowing what is going to happen next, and how to transition through the changes.
“A Negative Thinker Sees a Difficulty In Every Opportunity.” Well, I can well imagine how the onsite team might fall into this trap. After all, sometimes completely out of the blue you are told, usually in an impersonal telephone call, that your property is for sale. Maybe you did have a faint inkling it was coming, maybe you didn’t. Either way, most people will internalize this news and rationalize a plan of action.
The onsite team may well first think, “What will happen to us?” followed quickly by “What will happen to me?”
Change is difficult. Everyone understands this, but the questions a sale raises can blind any employee into not being able to see the forest for the trees. With today’s economic climate, employees may well worry about their financial well-being. They begin to worry whether or not their paychecks will be good, whether their current company will honor their accrued sick and vacation pay, whether...
By Linda Day Harrison, theBrokerList, Chicago, IL
Today more than ever, many people do not have traditional sources of employment income. With the job market shrinking, many of us are working for ourselves and are creating jobs by starting businesses and new ventures. With that being said, how does a self-employed individual purchase a residential or commercial location with the stringent financing requirements currently in place?
Simple! Look at properties with owner-financing. What is owner-financing? Owner-financing is when the seller of a property is in a position to act in the capacity of a lender. The seller accepts a down-payment and an agreement for repayment.
The advantages are tremendous and can be a win-win for both parties. Advantages include:
More favorable rates and terms.
Easier qualification process.
Able to sell a property in a depressed market.
Seller can get a much higher return than other vehicles such as a CD.
Seller can receive a substantial down payment.
Tenant can now become an owner.
Less closing costs.
Now like anything, there are many pros and cons depending on each seller and buyer's tax consequences and personal financial situation, including whether or not the property is held free and clear. Owner-financing should definitely be a serious avenue to consider when selling a property and when evaluating your lease vs. purchase decision on residential or commercial property.
An attorney is needed to assist in the process and as a buyer, you should still do your homework, via a due diligence period. Whether buying or...
When recently asked about which skill I felt was the most
important for a real estate developer to possess, I was stumped for about
thirty seconds (which is an eternity when someone is staring at you and waiting).
My mind raced. How could I not just rattle-off something well thought out and
brilliant? Shouldn’t this be a question that every developer must be able to
answer without flinching? Well- I flinched. But at the end of that short
eternity, my answer was ‘They must be great storytellers.’
I say this for one simple
reason: At his most basic level, the developer is a master salesman. We sell
our visions and dreams to our investment committees, the communities in which
we work, municipalities, equity partners and debt providers, and eventually to
the end user.
So what makes someone a great storyteller?
VALUES. More specifically, understanding what
your audience values. Unlike a Dr. Seuss fairytale, the developers’ story is
intended to illicit a response. It is designed to excite and sway the audience
to allow us to build, help the designers understand our vision, invest in our
project, lease or purchase from us, etc.
Our story will only connect with the listener if it appeals to what they value. For instance, telling a
County Commissioner about how much money you stand to make will not excite
them…hearing that same story, your equity partner will be quite pleased.
FOCUS. A good storyteller understands that they
are only providing...
Regardless of our role within an organization, we will be
asked throughout our careers to participate in, lead or evaluate various corporate
initiatives. After all, most of what a company really ‘is’ is a series of
interrelated initiatives. These could
range from the acts of sales, operations, marketing, and acquisitions to
finding efficiencies, fixing problems launching new products, etc. Generally we
would like to succeed in whatever initiatives we are involved. And hopefully we
have positioned ourselves for success through our understanding and expertise,
our dedication and will to succeed, and our preparation and focus. Additionally
we may have benefited from multiple books, papers and degrees which exist to provide
us tools or help train us to succeed at whatever task we undertake. But
invariably, there will be times when success is not an option or when we fail
after seemingly doing all of the ‘right’ things. In those cases what do we do?
Our next step should be to perform a postmortem. Think of
the postmortem as a forensic analysis of the results of the initiative.
Admittedly, the specifics of every project are going to be different. But if we
were to approach each postmortem as its own totally unique situation, then it
would virtually be impossible to be efficient in our analysis. Over time, we
also need the ability to connect the information that we gain to make better future
decisions. This is the exact same process that our minds go through as the act
No matter what our role is within the multi-family industry, there is always one word which is used more than any other; “community.” Some of us own communities, some of us develop communities, some of us design communities and others of us lease or operate them. And chances are that many of us live in an apartment, condominium or townhome community as well. So then why is it that there is so little ‘community’ in our communities?
When it comes down to this failure’s root cause, it can really only be one of two choices;
a. Either the management team does not expend their energies in a manner that creates a welcoming and vibrant atmosphere that encourages interaction, or
b. The developer did not guide the design in a manner that supports congregation.
Now because I am an owner and developer by trade and not a manager, my expertise is limited when it comes to the nuance of property management. I am positive that I undervalue the challenges of those on the front lines. But where I do have some insights is on the development side of the industry.
I have mentioned in multiple other essays that the developer has become effectively a highly functioning project manager. We have lost our intellectual curiosity about how folks ‘actually’ live. We have lessened our study of the ways that neighborhoods, communities and cities are formed, only to concentrate on sharpening our excel acumen and expand our address book of consultants. Instead, we generally...