How Much Do I Pay for Apartments?

How Much Do I Pay for Apartments
How Much Do I Pay for Apartments

The multi-family market is upside down at the moment.  Everyone in America and abroad is so afraid of the inflation that has began to take hold, that folks are willing to chase yield into oblivion and pay absurd money for apartment buildings – much too much, if you ask me. These crowds of investors chasing yields have been making it progressively more and more difficult to negotiate deals that make a damn bit of sense…

The 3 Types of Buyers

A few weeks ago I wrote an article for the BiggerPockets blog entitled The 3 Types of Buyers of Multi-family Buyers: Idiots, Jerks, and Me, in which I explored the underlying issue of why it is so hard to find a deal in this space that makes a damn bit of sense.  Finding a syndicatable opportunity is truly akin to finding a needle in a haystack…

The main problem with finance and acquisition of income-producing real estate is underwriting of financials – process by which we assess income and expense structures of an asset in order to back into the valuation.

The underwriting process is a difficult thing indeed, specifically in large syndication-level opportunities.  The reason I would not typically “classify” as syndication-level any asset comprised of fewer that 100 revenue streams is because anything, put very simply, it’s difficult to manage small properties because there’s not enough money to facilitate payroll for the right caliber/number of personnel.  As you know, or should know, management is the absolute key to success in real estate, and good management systems, run by good people, with good folks on the ground to execute costs money – more money than what’s available in a 60-unit.

Well – looking at the P&L of a six-plex is one thing, but looking at the P&L of an 165-unit community is something entirely different.  Why – because the level of meaning which needs to be extrapolated from the numbers and the magnitude of assumptions one has to make require a level of fluency which is uncommon – most investors do not have it!  And the reason most people lack this perspective is because it is a function of the images in one’s rear view mirror…

How Much Do I Pay for Apartments…?

Recently I was considering an acquisition of and 180-unit.  I had underwritten the opportunity and had made several trips to the property, one of which was with a property manager (you know – the guy at the top of a company that manages 5,000 units in the area – a property manager, not to be confused with a mom and pop rep).

I was days away from submitting an LOI.  This will have been a multi-million dollar acquisition and my underwriting was about $600,000 apart with what the seller wanted.  Close enough – I figured we’d meet in the middle some place and that will have been good enough…

Continue reading at BiggerPockets.com

Photo Credit: Light of Shade Photography via Compfight cc

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