What Kind of Returns Are you ACTUALLY Seeing?

[Michael Blank]

So I've been looking for deals in the Washington DC, Baltimore and Richmond VA area, and I've spoken with a half a dozen other investors nationwide, and the theme seems to be the same:

NO ONE SEEMS TO BE FINDING ANY DEALS.

I have two questions:

1. My first question is, what kind of returns are you looking for in your deals? 

I'm syndicating my deals, so I will have investors involved. I am looking for deals with IRR's between 12% and 15% for the investors. (The 12% IRR for investors assumes they own 70% of the building and get no preferred rate of return, and the exit is in 5 years. To compare apples to apples, the IRR would be about 16% if I were to own the building 100% myself). I could theoretically achieve that kind of return by buying an 8 cap on actual financials as long as there is enough upside to achieve those returns.

But I'm just not getting into those kind of deals. I am being out bid by crazy money, I don't know where it's from and why they'll put up with lower returns.

For example, I'm negotiating a 46 unit (B- property) right now: the seller is asking for $2.1M, I'm offering $1.7M, the seller agreed to $2M and they're totally set on that number and won't consider holding a second. I can't pay any more than $1.8M to make my returns.

A 24 unit, C-Type Property in Baltimore, asking price is $1.2M, there are two offers at $1.0M but the bank is not budging from their asking price, my max price is $900K. At $1.2M the cap rate is 7.8% with a projected IRR of 6% (!!). Who is willing to pay that? On the other hand, at $900K, the IRR for the investors is 13% with a cap rate of just over 9% going in.

2. If you're doing deals, what kind of returns are you projecting for those deals?

I'd like to hear from people who are actually doing deals, and what kind of IRR you're projecting for those deals, and any info about these deals you're willing to share.

Thanks!

[Chris Kennedy]

@Giovanni Isaksen and @Michael Blank, I'm a commercial realtor down here in south florida specializing in Multifamily and income properties. I also wholesale a good number of the same property types. In general, if a property gets listed on MLS , LoopNet, CoStar etc then my experience is that it has already made the rounds amongst a lot of serious investors who have passed it up due to being overpriced. Most listed deals aren't really deals! You are correct, the foreign money coming into the USA is looking for a safe place to go, so they are not as concerned with high IRR, or cap rate. They're trying to preserve capital. As this thread demonstrates, we're in a seller's market in the Multifamily sector - it's tough to find the good buys, but selling them is easy.

My personal tips for finding the best Multifamily properties:

1. Direct mail - get to the sellers before they list

2. Build relationships with brokers who specialize in Multifamily, and then make it easy to do business with you

3. Drive the neighborhoods and call for rent signs

4. MOST IMPORTANT: Follow-up religiously with potential sellers. Most of my listings/wholesale deals are only realized after 6+ phone calls with the sellers, frequently months after first contact, so don't give up (that's what everyone else does!)