MF acquisitions - Avoiding low cap rates & Negative Leverage

[Tony Guarino]

Hey Everyone, my business partner and I have recently taken on the challenge of raising some capital and investing in MF properties. I come from a finance/economics & underwriting background. So while he is wheeling and dealing, networking, and putting deals in the pipeline, I am underwriting them. However, all I am getting are on-market with +/- 5% Cap rates. Obviously, with interest rates being above 5%, this creates a negative leverage environment where there really is no deal. Caps rates have to soften at some point, but I think this negative environment could last for at least a little longer.

So with this in mind, I have a few questions for anyone in this space currently doing deals. 

1. Is there anyway to negotiate on market deals with brokers who think the Holy Grail is hidden at the property? Some how convincing them to sell at a 6.5% cap instead of a 5% cap? Maybe target deals that are just sitting on the market?

2. Where is the sweet spot for finding off-market deals where we could negotiate some creative seller financing? My guess is 10-50 units, make friends with wholesalers, etc. 

3. I am thinking that targeting some markets, which are not SUPER HOT, might give some more room for margins due to less competition. Does this pencil out - any comments? 

Any thought provoking thoughts, advice, or critics, are welcomed! Thanks in advance.