What are investors looking for?

Question

I personally built & own a 12 unit, 100% occupied (for last 3 years) multi-family , with 10.5 % cap, $115K gross inc, on 3 visually appealing acres, located within 3 minutes of a major military base (yet I have 50% "civilian tenant ratio"-thus my tenant base is diversified), 8 minutes from a recreational lake & tourist destination.

I am selling due the fact we have many other investments and want to reduce debt while we are in our younger years and have an abundance of "long term" income.

I know when I started RE investing 14 years ago, I would have crawled through broken glass to invest in properties such as these, what are investors looking for?  Before we invest do the have to smell blood? Does it have to be via an auction? Do we need fictitious  financials with unreal profit potential? Are we all looking for the bankrupt 30 story hotel in Vegas that we can steal in a tax auction? I am confused.

Brent Hulen · Answer

Mike B.

I get it , Reits and Group Investors can't waste their time on the small stuff. But what about the investor who is tired of paying hidden fees in their Reit - stocks etc. Who wants to own property without having to call a board meeting to decide how many times we are going to mow the grass? When I started I wanted "freedom". Freedom to refinance, raise rents, or paint the walls kilim beige when needed. But hey, I get your point.

What Market? Elgin-Fort Sill Oklahoma. As noted I have 50% civilian tennant. As to Fort Sill's stability?(largest artillery base in the US) Those who have bet on it's closure since it's inception in the late 1800's have lost. We all know there is no shortage of bad guys.. from Geronimo to ...(see Middle East, Korea, China, N. Africa etc). The other employers are Goodyear, hospitals, Government contractors, growing natural gas industry etc. I am not dependent on any 1 source.

As to newer property with 10% cap rate. It's here, I can tell you how many 2x6s I used when constructing it in 2012. It is a 2 bed 2 bath design that was inspired by my admiration with an apartment complex designed by a Frank Lloyd Wright student -apprentice. Granted, its no "Falling Water". But the interior just works, year after year. I have very little turn over. Yes I am selling.

Brent Hulen · Answer

Sean-

Comps? Very few and far between. The most recent was a 100 unit complex in demise. It sold in 2009 for pennies. I would not have taken it for free. Bad locations will be bad locations despite good intentions and investment. There is another complex for sale close by that is offered for $10-15K more than my asking number, and they are older with less interior amenites, such as granite- cathedral ceilings- patios.

How am I marketing? Local Mls-loopnet- and by networking with a few commercial brokers. Do you have any suggestions? I know they will sell, in fact I have several nibblers, but my first job out of college was selling copiers. It was guerrilla warfare, and I am "a bit" impatient. I am ready to tackle this.

Sean Brooks · Answer

Each investor has different goals, strategies, and plans from the types of properties, to how much of a ROI, to how much cash flow they from any particular property. A savvy investor will do their homework on any property and make an offer that will get them closer to their goal. It's difficult for you to find their secret number but if I was you. I would run the comps that's close to the property that you want to unload. From the sound of the property is sounds an OK deal but how are you marketing the property?

Mike B. · Answer

Brent,

We simply chase cash on cash return and know that all the other benefits will fall into place if its there. You mentioned it is a 12 unit building, which might be part of the problem if you are having trouble locating a buyer. That size is suited to a mom and pop type investment and those operators might be having a tougher time raising equity to invest. A lot of money is chasing higher yields right now in the larger transactions that are being syndicated. That said, you did not mention the market or if that military base is the sole major employer in the area. There are a lot of factors that we consider when looking, but I would love to know more about a newer build property selling at over a 10 cap!

Mike