What a Real Deal Looks Like - Don't Be Fooled!

[Ben Leybovich]

So the name of the thread - loaded subject, and maybe as this thread unfolds we will touch on a lot of things, but to kick this off:

@Sam Grooms and I just had a meeting with our PM at the  98-unit we closed on August 17th . Present for the meeting were Sam, myself, the regional, and the on-site manager. 

I see people doing a lot of deals most of which I wouldn't touch with a 10-foot pole. I see things being called value-add that I would call a pig, first thing in the morning before it has a chance to put lipstick on. 

So, just to underscore what a deal looks like, let me piss some people off.

While we were on-site for the meeting, several things happened:

1 - The on-site informed us that she is renewing 2x2 leases at $190 premium to in-place. This is without us touching the units. This is simply to re-capture the LTL. 

2 - In one instance the increase was $290. 

3 - A lady who is a current resident came into the office while we were there and proposed: If I find a place to stay for 3 weeks, can you get into my unit and remodel it? She was advised that her rent would go from about $850 to $1,150. Her response was - how soon can we do this?

Guys and girls - listen up!

1. It's much more expensive to own property than anyone wants to talk about.

2. Cash Flow depreciates much faster than anyone wants to talk about.

3. CapEx costs much more than anyone is willing to admit.

Value-add is the only saving grace there is. The IRR is the definitive metric, and it's very difficult to make things work (I'd say impossible), with anything less than at the absolute minimum $250 per door value-add. More likely $300.

All of those offers you are seeing with $150 of value-add per door are garbage...