Wanted to ask the experienced syndicators here where are you investing and why?
It might be a loaded question be what I'm trying to learn and better understand, is that I noticed that a lot (if not most) syndicators that I come across invest in -
- Atlanta Georgia
- South & North Carolina
- Dallas Texas
- Some Orlando Florida
As I'm living in Miami and ideally would like to invest in this area (Looking for 16-50 units), I'm finding it's quite challenging to find a deal that works and things here are very expensive, which makes me start wondering if I should look outside of Florida, but I wanted to better learn and understand what is so attractive in those places that I mentioned above that, for example, Miami doesn't have? Is it lower property taxes and insurance? more multi-family inventory? more people looking rent in the garden-style multi-family where for example, Miami people are looking for condos?
Would be grateful to learn from you guys.
Thanks.
@Guy Idan, the markets you mention, and most every other market are hard to make numbers work. You mention "large MF syndications", can you confirm what large means to you? To me it is 200+ units per community, but you mention 16-50 units.
As for what makes markets attractive: diversity of economy (no single industry cities), population growth, and rent growth are some of the primary drivers for markets. Transaction volume, landlord friendliness, and others can also factor into market decisions. Lastly, pricing will dictate a lot of people's decisions, but this becomes a trade off for risks. I.e. Indianapolis seemingly trades at higher cap rate than Atlanta, but Indy overall saw a 12% Year over year rent growth vs Atlanta's 20%, and continued forecast rent growth in Atlanta is projected to continue to outpace Indy.
I do not mean that Indy is a bad place to invest, but you are generally trading current return (higher going in cap rate in Indy) for faster long term growth in Atlanta.
As for size, a big piece of any multifamily investment is your ability to exit at a good price. Knowing your likely buyer pool is imperative. So if you are buying a 16-50 unit property, I would say you likely buyer is going to be a local group and/or a mom and pop type investor. As such, market is not quite as big of deal, as long as you aren't buying 50 units in a tiny rural town with a population of 1,000. But any reasonably major market, you will have investors willing to pay for that asset. If you are buying 200+ units, your buyer pool will be institutional. In this case, the larger demographic trends will come into play at a much larger level.
I believe you can find value in almost any market, but I am currently building a portfolio in Houston at the moment. Bought 588 units down there last year and looking to add more this year. Would love to buy in Dallas (where I'm based), but it's incredibly competitive. Im originally from Houston too, so know the market very well. We can also get a more attractive basis than Dallas and we don't have to be as aggressive on assumptions.
Our growth strategy is to focus our efforts in certain areas so we can build our portfolio to a size where we can bring on asset managers. It's much harder to keep track of everything when they are spread out in different states without the proper infrastructure for asset management.
I believe you can find value in almost any market, but I am currently building a portfolio in Houston at the moment. Bought 588 units down there last year and looking to add more this year. Would love to buy in Dallas (where I'm based), but it's incredibly competitive. Im originally from Houston too, so know the market very well. We can also get a more attractive basis than Dallas and we don't have to be as aggressive on assumptions.
Our growth strategy is to focus our efforts in certain areas so we can build our portfolio to a size where we can bring on asset managers. It's much harder to keep track of everything when they are spread out in different states without the proper infrastructure for asset management.
@Guy Idan, the markets you mention, and most every other market are hard to make numbers work. You mention "large MF syndications", can you confirm what large means to you? To me it is 200+ units per community, but you mention 16-50 units.
As for what makes markets attractive: diversity of economy (no single industry cities), population growth, and rent growth are some of the primary drivers for markets. Transaction volume, landlord friendliness, and others can also factor into market decisions. Lastly, pricing will dictate a lot of people's decisions, but this becomes a trade off for risks. I.e. Indianapolis seemingly trades at higher cap rate than Atlanta, but Indy overall saw a 12% Year over year rent growth vs Atlanta's 20%, and continued forecast rent growth in Atlanta is projected to continue to outpace Indy.
I do not mean that Indy is a bad place to invest, but you are generally trading current return (higher going in cap rate in Indy) for faster long term growth in Atlanta.
As for size, a big piece of any multifamily investment is your ability to exit at a good price. Knowing your likely buyer pool is imperative. So if you are buying a 16-50 unit property, I would say you likely buyer is going to be a local group and/or a mom and pop type investor. As such, market is not quite as big of deal, as long as you aren't buying 50 units in a tiny rural town with a population of 1,000. But any reasonably major market, you will have investors willing to pay for that asset. If you are buying 200+ units, your buyer pool will be institutional. In this case, the larger demographic trends will come into play at a much larger level.
@Guy Idan, the markets you mention, and most every other market are hard to make numbers work. You mention "large MF syndications", can you confirm what large means to you? To me it is 200+ units per community, but you mention 16-50 units.
As for what makes markets attractive: diversity of economy (no single industry cities), population growth, and rent growth are some of the primary drivers for markets. Transaction volume, landlord friendliness, and others can also factor into market decisions. Lastly, pricing will dictate a lot of people's decisions, but this becomes a trade off for risks. I.e. Indianapolis seemingly trades at higher cap rate than Atlanta, but Indy overall saw a 12% Year over year rent growth vs Atlanta's 20%, and continued forecast rent growth in Atlanta is projected to continue to outpace Indy.
I do not mean that Indy is a bad place to invest, but you are generally trading current return (higher going in cap rate in Indy) for faster long term growth in Atlanta.
As for size, a big piece of any multifamily investment is your ability to exit at a good price. Knowing your likely buyer pool is imperative. So if you are buying a 16-50 unit property, I would say you likely buyer is going to be a local group and/or a mom and pop type investor. As such, market is not quite as big of deal, as long as you aren't buying 50 units in a tiny rural town with a population of 1,000. But any reasonably major market, you will have investors willing to pay for that asset. If you are buying 200+ units, your buyer pool will be institutional. In this case, the larger demographic trends will come into play at a much larger level.
@Evan Polaski Makes tons of sense. I Appreciate the great response. When I say large multi-family I do mean the 150+ units. It's not yet where I'm at but I'm studying the big guys, like Ashcroft ;)
@Guy Idan it's tough finding a good deal just about anywhere at this point. Some places you can get a better "bang for your buck" than others. That's just one reason why we love the Midwest and especially Indiana.
While Evan pointed out cap rates and rent growth, I'd argue that investing in Indiana has a tortoise versus hare approach to it. It may not have the highest rent growth in the country but it has had nearly 40 years of consistent rent growth.
Further, Indiana is the #1 state in the Midwest for business and #9 in the country for business tax climate vs. Georgia #32 "2022 State Business Tax Climate Index"
1st in most pass-through highways
1st in shortest distance to the median center of the US population (within a day's drive of 50% of the population of US and Canada)
#2 largest Fedex hub in the world.
Those are just a few reasons why we love it, what about you @Paul Shannon, @Justin Goodin, @kentritter?
@Andrew Hogan, can I down vote this response? :)
I will agree that the midwestern cities, while lacking in the turbocharged growth, often are insulated in the downside too, because you can get "more" for your money, and they will consistently be the low cost option, that will be a draw to many.
@Guy Idan Honestly, in the 16-50 unit range, your submarket is going to matter a little more than the overall market, assuming you are buying in a fairly large, stable metro area, whether it be in the midwest or SE, or NE or west coast. These properties are often mom and pop owned, and your exit will likely be to another mom and pop type buyer or more recently syndicators just starting out. These buyers will always be there, and are often buying in the areas they know and live in.
Many syndicators are buying 150+ unit properties. The purchase prices put them into institutional territory and therefore demographic trends have a much stronger push on their investment decisions. I think it is smart to follow what they are doing, just like it is smart to follow where the public REITs are buying and developing, but you are comparing apples to oranges. And the investment decision for apples does not need to be the same as for oranges.
A targeted area for one syndicator may or may not be ideal for another syndicator and his/her investors. When performing a proper market analysis, its very important to dig deep into your target market and the surrounding neighborhoods. You should take a look at the data on population/job growth, major employers and workforce education levels, past/current, and future market trends for MF rentals in your market. Also, understanding where each market is at in a real estate market cycle (Recovery, expansion, hyper supply, recession) will have an impact on your investment strategy as well.