It is important to have a direct criteria when it comes to location and building so we and the broker both have an aligned understanding of our goals. First, we established our Criteria When Deciding on a Multifamily Location. Now we will discuss our specific multifamily building criteria when deciding on a deal.
B & C Class Properties
Untapped Potential: Most institutional investors target A and B properties with 200+ units. These investors are looking for an easy 5%-10% return asset that doesn’t give them any headache. There are fewer companies targeting the C to B- asset class properties that are under 200+ units. Which gives us less competition and more of a possibility of finding the needle in a haystack deal. It also gives us the opportunity to possibly buy a C class property, renovate and improve the asset, and turn it into a B class property.
Recession-Proof: With a recession always being a possibility, we always want to be proactive and prepared. When a recession hits consumers become more conscious of their purchases. Instead of eating out five times a week they eat out twice a week. Instead of going on a vacation out of the country they take a road trip in their home state. No matter how dire the economy is people still need a home to live in. When a recession hits families will move out of their house or class A apartment and move into a B or C class apartment. Thus we see class A apartment rents decrease but class B and C multifamily properties tend to see more demand.
60-120 Units
Economies of Scale: Rule of thumb is you need to have an onsite property manager at properties that have 60+units. One of the benefits of investing in multifamily properties is the economies of scale. If we were to invest in a 40 unit property that didn’t require an on-site property manager, we wouldn’t be utilizing the full benefit of economies of scale.
1980-2010
Value Add Opportunities: Properties built in this time range have a higher chance of having value-add opportunities. Opportunities like below-market rent, mom & pop management, possible renovations, low % of RUBS billed back to tenants, etc.
Roof Expectancy: One of the most important multifamily building criteria, roof replacement is one of the highest costs when holding a multifamily property. Any way to decrease the chances of having to incur this expense while we hold the property is a plus. The multifamily roof life expectancy is around 25 years. If we purchase a property within this time range we can expect a new roof has been installed and the next roof will be needed around 2030. Since our hold strategy is 5-7 years, we should have sold the property before the roof is needed to be replaced. With that being said, this is just a guideline and doesn’t mean we won’t look into a deal based on its roof. We will just be a little more cautious and ensure a good roof inspection.