What is considered a "good deal" for multi-family/apt properties?

Question

For all the successful and experienced investors, what do YOU consider a "good deal" when hunting for multi-family and apartment investment properties? Can you share you first purchase experience and where you're at now? Lastly, any advice on how to fund these deals when we find them?

David Thompson · Answer

In reviewing deals, I see investors attracted to the 8-10% yields and 16 - 20% IRR and like @Brian Burke these deals are in the strongest markets / submarkets; underwritten conservatively with experienced sponsors.  Preferred return of 8% meaning the limited partner is getting the first 8% of distributions / capital event payout before general partner is paid.  This is post fees and often does not show refinances or supplemental loan opportunities after renovations are complete typically end of year two.  Most target close to a 50% return of capital if that path is pursued (refi/sup loan) and a hold period of 5 years on average though could be a sale in yr3 - yr7 depending on market conditions.  Splits in the 70/30 (LP/GP) are very common w/experienced syndicates.

Michael Le · Answer

Let me just point out that this is not a good deal but an unbelievable deal. If you bought a $2.5M property, the equity amount invested is likely something like $750k-1M. If you include the cash flow along with the profit from the sale, you're talking about 300% return.

Brian Burke · Answer

A good deal is in the eye of the beholder. It would (and should) look different to everyone.   Some people really like older properties, high cap rates, run down neighborhoods, or whatever. I've been there and done that and it's a tough way to make a living but a great way to learn the ropes. So for this old dog my "good deal" looks different than it might for some fellow BPers.

My first Multifamily was 16 units in California that I bought in 2002 and still own. In the last five years or so I've bought 1,500 units and a good deal to me is one where I can generate a 14%-17% IRR net to my investors after all profit splits and sponsor fees measured over a variety of hold periods and stress tests with conservative underwriting assumptions.

My typical deal is built in the 1980s, 150 to 300 units selling for $15 to $25 million. A "good deal" has a story--something wrong that I can correct such as dated interiors, poor curb appeal, lack of amenities, bad or ineffective management and below market rents. As long as there is something (or preferably multiple things) that I can fix and the property is located in a strong market it's a good deal--as long as I can generate the IRR my investors are looking for.

Douglass Benson · Answer

We invest primarily in mid-Michigan.  We are value investors, so for us a "good" deal is a building that is tired, run down with less than desirable tenants located in a decent to good neighborhood.  We buy buildings exactly like that, pour money into them to make them the best in the market and throttle the daylights out of the rent while we are increase the caliber of the tenants.

Our first apartment was a 4 unit that was built in 1885 as a boarding house and converted to 4 one bedroom apartments.  We bought it in 2003 and own it to this day.  We are now at 81 units and trying to grow, but growing is harder than it used to be!

Peter B. · Answer

A good deal to me is a property with cosmetic and management flaws. I dentify the flaws and improve on them. Some flaws may be as simple as below market rents, Poor marketing, deffered maintanence, Dated interiors, old heating systems.

Buy off of actual financials and make these improvements.

Todd Dexheimer · Answer

A good deal is different for everyone. Some like good solid cash flow, others like value add, some like A class and others like B, C and D class. Personally I like value add B and C class properties that I can make 12%+ cash on cash and 25%+ IRR in 5 years. I will only invest in deals that I think I can refinance within 2 years to be able to get my investors back 50% or more of their money.

Joseph Bramante · Answer

Because cash flow is king. Refi to get the pop and keep the property. If you sell, you get the one time pop but then have to pay tax and find something else to buy. But if you already had another project lined up, then sure. I see your point.

Michael Le · Answer

We're all playing around with fake money anyway but why would you assume I invest the same way you do? What if I don't want to refinance but go for a full sale instead?

Joseph Bramante · Answer

Sorry Michael, that is no where close to 300%. More like 200% return excluding closing fee. $3M all in (assuming 500k rehab). 750k down. Refi at 3.75M and cash out 1.5M.

My greatest deal was a 26 unit purchased for 650k with 700k in rehab. Appraised for 3.4M with a 2.2M refi loan. Cashed out 207% return

Sarah Givens · Answer

Thank you everyone for your input! What do you look for in a partnership? I'm currently seeking partners/lenders (private or hard money lenders) to fund multi-family and apartment properties in Utah. Please reach out to me for more info!

What is considered a "good deal" for multi-family/apt properties?

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