underwriting Indianapolis and Kansas City deals

[Jason Malabute]

I keep getting beaten out on these cash buyers and 1031buyers and it's driving me crazy.  I am actually underwriting correctly: 1. using the property manager's average expense per unit projections ($5000-5500) 2.    using the property manager's rent projections 3. 6 months of operating reserves 4. physical and economic vacancy never dipping below 10% (kc and indy long term vacancy is 10%, but currently is around 6-7% according to costar)   5. I'm using 3% rent growth (before the inflation craziness of 2021-2022 multifamily rent growth in both markets averaged below 2% for 20 years . Rent growth in indy at 16% and kc is at 8% according to Redfin currently YOY, but rents are trending down. 6. if you are looking at 40-180 units, in a b/c+ area in indy or kc, and built between 1960- 2002 cap rates are at 6-7% today and they are moving up 

How are people winning deals making sense of their underwriting paying $100k per door in Indy and KC? How can I  be MORE competitive and still be conservative ?  

[Mike D'Arrigo]

@Jason Malabute Can you explain what the 6 months operating reserves is? I'm not clear how you are building reserves in to your analyses and what the reserves are for. Also, I think the 10% vaacancy rate is high. We've been active in boooth Indianaplis and Kansas City and the vacancy rates have consistently run 5-6% but that will vary by class of neighborhood. I'm sure there are neighborhoods that are in the 10% range but those aren't areas that we choose to be in.