Defining Crystal Clear Criteria (CCC) for Large Multifamily Investments

[Chris Magistrado]

Hey everyone,

I’ve been diving into Chapter 1 of The Multifamily Millionaire, Volume II: Create Generational Wealth by Investing in Large Multifamily Real Estate by Brandon Turner and Brian Murray, and I wanted to share insights on one of the most important concepts: Crystal Clear Criteria (CCC).

When scaling up to larger multifamily investments, having clear and specific criteria is critical for success. This ensures you focus your time and resources on deals that align with your goals. Here’s what CCC looks like when applied to large multifamily properties:

Key Elements of CCC

1. Geographic Location

Define the regions or markets where you want to invest. Consider population trends, job growth, and economic stability in these areas.

2. Property Type

Understand the different types of multifamily properties:

• High-Rise: 9+ floors with an elevator, often urban.
• Mid-Rise: Smaller than high-rise, usually with elevators.
• Garden-Style: Low-rise apartments in suburban or rural settings.
• Walk-Up: 4–6 stories without elevators.
• Manufactured Housing Communities: Mobile home parks where land is leased to homeowners.
• Special-Purpose Housing:
  • Student Housing: Designed for college students.
  • Senior Housing: Dedicated to older adults.
  • Subsidized Housing: Affordable housing supported by rent and income restrictions.

3. Property Class

Properties are categorized by class, impacting their quality, condition, and investment profile:

• Class A: High-end, newly built, prime locations, attractive to institutional investors.
• Class B: Good quality, older than Class A, with minor deferred maintenance.
• Class C: Older properties with dated amenities, but value-add opportunities exist.
• Class D: Distressed properties in less desirable locations with high risks but potential for significant improvement.

4. Price Range

Define your financial boundaries based on available capital and borrowing ability:

• For Class A & B, financing typically covers 75%-80% of the purchase price, allowing you to buy properties in the $6M-$12M range if you have $2.3M total cash.
• For Class C & D, due to higher risk, the price range might be reduced to $5M-$10M with the same cash.

5. Size

Consider the number of units you’re targeting:

• Example: For Class C properties priced at $8M in a market where the per-unit cost averages $80K, you’d focus on properties with around 100 units.

6. Occupancy

Most lenders require a minimum occupancy rate of 85%. Properties below this threshold present additional risks and more limited borrowing options.

7. Target Returns

While target returns are crucial, these should be discussed only with investors—not brokers or others helping you find deals.

Sample Investment Criteria

Here’s an example of well-defined CCC:

• Location: Primary and secondary cities in the Southeast with population growth.
• Type & Class: Class C garden-style or walk-up workforce housing with repositioning opportunities.
• Age: 1980s construction or newer (case-by-case for older).
• Price: $5M–$12M, requiring $1.5M–$3M in funds.
• Size: 100+ units.
• Cap Rates: Market rates.
• Roof Type: Pitched roofs preferred.
• Value-Add: Opportunities for improvements or better management.

Why This Matters

By creating crystal clear criteria, you:

1. Avoid wasting time on deals that don’t align with your goals.
2. Build trust with brokers and partners by demonstrating a focused investment strategy.
3. Increase your chances of finding deals that meet your financial and operational objectives.

I'll be posting each chapter as I go through them so you can follow along from my notes and we can discuss different strategies. I'd also love to connect with you all.

And if you are already investing in commercial multifamily, what is your own investment criteria? I’d love to hear what you prioritize when evaluating multifamily deals. Thanks!