Our goal in the Multi-Family process is to find C, C+, B- and B properties in growing areas that have the possibility of being upgraded to a higher level

Ideally, these are already undervalued properties in a higher ranked area that just need cosmetic improvements and upgrades to raise Rents and Property Values

Meeting of Brokers – Commercial Real Estate Brokers are a valuable asset to finding the deals we need to achieve our goals. We find and meet brokers by attending real estate meet ups, finding them through online services, or through introductions from friends and family.

Gathering Financial and Market Data – After finding a prospective complex, it is our duty to then gather all important financial and market data. This includes securing the T-12 Financials, Rent Rolls, and Offering Memorandum from the broker. If not familiar with the area, we may do a casual drive by also. It is then imperative to research and collect the market data for the area where the complex is located. This includes finding the current market rent rates and current occupancy percentage for surrounding complexes, determining if there are any economic factors (opportunity zones, new developments, population demographics, etc.) Also, some complexes may have already started a value-add program which would give a proven track record for rate increases.

Analyzing the Data – After all the required information is obtained, the underwriting for the property begins. We use an Underwriting Template that was created by RE Mentors. We enter the financial data that was provided by the seller, then enter the cost per door for our expenses (taxes, insurance, repairs and maintenance, general admin, marketing, property management, contract services, utilities, payroll, etc.) This information is collected by putting together costs that other properties similar in size spend per year. We then determine if any value-add components can be added to increase the total revenue of the property. This includes upgrading the flooring, counter tops, cabinets, appliances, painting, extended private patios, or additional amenities. We also consider the possibility of converting units into temporary vacation or corporate rentals. These options can be used if they can increase revenue.

Determining if the Property is a DEAL – After reviewing the data that has been entered into our underwriting template, we then transfer that data to our in-house Pro-Forma tool which shows our annual expenses and revenue. We can then determine the amount of cash needed for closing, cash needed for upgrades to increase revenue, and the expected annual return. If the property meets our expectations for annual returns we then move forward with the process.

Touring the Property – After it is determined if the property would be a good deal, we set up a time to go tour the property. It is at this time we are able to meet the current property manager and ask the questions about the property (ever been flooded, what residents want, and etc.) We also get to see inside some of the units to determine what upgrades and repairs would be needed.

Making the Offer – After finding the property, analyzing its financials, touring the property, and creating the pro forma we can now make an offer. We submit an LOI (Letter of Intent) to the broker and then the negotiations begin. Offers sometimes go back and forth a few times, but if agreed upon we then move to secure earnest money and the other funds needed to move forward and close on the property.

Managing the Property – We are hands on owners for review and oversight, and we use a third party team for our onsite management of these properties. These companies must meet our expectations for monthly reporting and provide the service we expect. We currently have a working relationship with Creative Property Management who has been servicing apartments as property managers for over 40 years. It will be our responsibility to approve all repairs and costs over pre-selected limits, and reviewing of monthly financial reports, bank statements, rent rolls, tenant lists, etc. On-site visits to ensure property maintenance and weekly meetings with property manager to address any issues help assure us and the investors that the property is being managed properly.

Exit Strategies – There are multiple exit strategies with apartments. One being a flip. The idea behind this is to find an older complex in need of major upgrades and repairs. Our goal would be to start rehabbing right away to make the apartments more attractive inside and out, and to stabilize and upgrade with better tenants. By upgrading some to all the units, we can sell in 2-3 years to someone interested in buying at retail prices, or someone wanting to do very little value adds. Second would be a 5 to 7 year hold with good cash flow. This complex will allow us to get high cash flow every year and when considering the appreciation in value, be sold at a reasonable profit after 5 to 7 years. The third would be a capital play. In this property the yearly cash flow will be lower and possibly not meet annual returns on a yearly basis that we may see from other properties, but profits would be made up at the sell. These properties are typically going to be apartments in redeveloping neighborhoods.