Here is when it makes sense to buy nicer properties

[Joe Fairless]

I've been documenting my company's progress and lessons learned as we've grown. We recently closed on two apartment communities which puts our total portfolio over $170,000,000. You can catch up with my lessons learned from other deals here: 

https://www.biggerpockets.com/forums/432/topics/42...

With these two deals, something interesting happened. We recognized that our acquisition criteria are similar to others acquisition criteria. Here is ours: 

- 1980s or newer 

- 150+ multifamily units 

- in major market 

- value-add opportunity 

Normally we've been finding and buying properties built around the 1980s however recently it has been very challenging to get those deals due to the competition. Therefore, we took a step back and re-assessed our approach. 

After reviewing all the potential deals in our pipeline we realized that the newer deals (built between 1995 - 2005) were actually projecting to have very similar returns to the 1980s properties. The reason I believe is because when a 1980s deal comes out everyone is looking for it and conditioned to make that a priority. Conversely, when a newer property comes out they might not think the #s work as well or that it wouldn't have the same value-add opportunity as an older property. 

What we found is that the newer properties have about the same projected returns (although slightly lower than 1980s) however they are newer (obviously) so will likely have lower ongoing maintenance issues (generally speaking). 

So, we shifted our approach and bought a property built around 2000. 

The takeaway for everyone looking for deals? 

If you're having trouble getting deals then reassess your acquisition criteria and see if you can scale up on your quality and still project to make similar returns. You might end discovering what we did which likely lowers your risk in the deal since it's newer and comes with fewer management headaches. 

That said, we still look for the 1980s deals and the other deal we closed on recently was an off-market deal in Dallas, Texas. So, we're keeping our eyes open for our original criteria but also know acknowledge that sometimes it makes sense to upgrade especially when everyone else is looking for what you were originally looking for. 

[Andrew Severino]

@Joe

@Joe Fairless I agree. Higher quality properties make sense if the numbers work, even if you have to pay up a little, as you pointed out due to less management headaches. I am currently having to make some decisions on a 1970s apartment complex regarding the potential need for updates and improvements.

Occupancy rates should be higher, tenant retention better, and maintenance costs lower.  For a long term hold, these benefits can substantially augment returns, and less management headaches open up room for additional acquisitions from an operations standpoint.

Thanks for sharing your experiences, looks like you guys are doing very well.