The Multifamily Investment Strategy
You Don't Need Money to Make Money You Need Value to Make Money
Six33Props' alliance with MF Capital Partners gives any investment partner a layer of protection for their capital that comes from a proven track record of investment model knowledge and know how. Their over $200 million dollar portfolio of multifamily acquisitions is proof positive that the strategy and implementation of that strategy is a model for success. The added beauty of their model includes showing and sharing with others like Six33Props how to accomplish what most investors would never have access to in the form of one-on-one teaching to ensure your confidence in investing capital with us on this type of level. That's why their emphasis on the premise that it doesn't take money to make money it takes value to make money- is true in the multifamily space and as a general truth in life. If what I have to offer adds value to you financially, educationally, or spiritually- it is at its core -a worthwhile investment.
The firm’s strategy focuses on improving, thereby adding value to Class B & C apartment communities in secondary and tertiary markets nationwide. These are turbulent times and uncertain times for any investor but what we know historically, is that real estate has been the least volatile and most stable-the most predictable vehicle of any kind for investing in economic downturns while still offering strong upside potential during up cycles. Within the multifamily market, Class B & C properties provide one of the most attractive investment opportunities out there primarily due to the market imbalance- a strong and growing demand for these units and the limited new supply available.
Choosing the “right” apartment complex is probably the most important aspect in the various criteria used when deciding to acquire a multifamily property. There are choices in every market but the ability to purchase a project that is located in an emerging market where there are strong indicators showing growth trends; people moving into the area, good job growth factors and strong economic indicators are crucial to recognizing a good deal.
Emerging Markets Can Be Identified By Certain Tell-Tale Signs:
*People moving into the area, instead of moving out. (Locations like the Phoenix, AZ, Atlanta, GA and Charlotte, NC areas)
*Jobs being created, new employers coming into the area as opposed to lost jobs
*Rents are increasing/property values are increasing
*Local government incentives to attract new employers to the area
There are many indicators that go into analyzing emerging markets and current market trends, but we start by researching several of the most important key factors before deciding to invest in a market:
*Population Growth Percentages
*Job Growth Reports
*Local Economic Growth and Trends
*Chamber of Commerce Reporting
*Path of Progress Reports
The various criteria used to determine and pinpoint undervalued multifamily properties for acquisition and optimization are primarily based on several factors:
*Age: Statistics show that 18-35 year old market segment is 22% of the population
*Income: Renters earning $40,000 annually or higher
*Price: Where rents are 30% or less of the medium income
*Retiring Baby Boomers are downsizing and seeking a more maintenance free communal lifestyle
*Multifamily residential apartments
*Pitched roofs as opposed to flat roofs are preferred
*Occupancy rates above 80% (90% optimal) with the exception of units requiring renovation- providing property is in a good location and provides value-add opportunities
*Size and Price: 50+ units in the $4 million - $50 million range
*Returns: 7-10% Cash on Cash, Minimum Debt Service Coverage Ratio of 1.25 (DSCR)
*Property Types: C- to B+ properties located in C- to A areas
*Property Maturity: 1975 or newer
*Location: Emerging markets pointing to strong growth indicators and long-term economic growth
Value Add Strategy
The value-add strategy is the same strategy used by residential flippers. You have a property that is in need of rehab or renovation that has a current value which is much lower than it will be worth after you’ve renovated it. Cosmetic changes are a flipper’s dream purchase because its simply a matter of changing out flooring or redoing a kitchen – new paint and some exterior upgrades. Well, with apartment complexes it’s the same thing; changing or adding things that will increase the value of the apartment project.
Some examples of value-add strategies Six33Props would implement are:
*Improve curb appeal by painting the outside of the building or updating the landscaping
*Adding security gates or carport for tenants or implementing a trash pick-up service. Tenants pay more money for amenities that add value to their lives and where they live is in better condition
*Purchasing a property where the current rent rolls are 10% or more less that the current market rents. This immediately allows us to increase the rents thereby increasing the value of the property and the equity stake for the investor.
*Implement a utility system referred to as RUBS (residential utility billing system) which allows the tenants to pay for the utilities. Generally speaking, owners typically pay for all water and sewer costs. Implementing the RUBS system will offset utility expenses amounting to increased cash flow to the investors.
*Improve unit interiors with new flooring, appliances, paint – make higher end appointments to certain units on different levels and with different views to support higher rents that generate more income
*Adding coin operated laundry facilities and laundry dispenser machines generating another stream of additional revenue
Path of Progress Strategy
The path of progress strategy is simply the path in a market where the most amount of development or revitalization and building is taking place.
Path of Progress can be:
*Properties are rapidly going up in appreciation
*Most of the new construction is happening here
*Families and individuals are moving to the area
Acquisitions in a market’s path of progress translates to highest yields in the shortest amount of time