Brrrr in Albuquerque and surrounding area

[Jon Paszkiewicz]

Hi, nice to meet all of you that I will be learning from here. I've been trying to read before I opened my mouth in the forums, but it seems like there were a lot of locals willing to help answer each other's questions. We live in a a tough but great city, so it's good to see people looking out for one another. I think people improving housing can really start to change areas here. My plan includes mfr/sfr buy and hold as rental following the brrrr strategy with a hard money start and a refi through a local broker who can do delayed financing. I want to take a year to have relationships ready, raise my familiarity with the process, and learn what not to buy before I start making deals. Any major flaw to this in Albuquerques market? Go Lobos, Jon

[Account Closed]

@Jon Paszkiewicz, I have been checking ABQ out for about a year now, and have spoken to a few brokers, lenders, etc, and run numbers but mostly on MF. 

I think basically the deal with ABQ is that there is very little growth and very little new inventory coming online, which means on the one hand you are protected from rising vacancy but on the other investment RE is expensive for what it is, as no new inventory comes online to push down prices. According to Berkadia a measly 249 units were added YOY with demand of 405 still exceeding new supply. I mean those are really really low numbers. But rents will keep growing! That class C building with the same tenant demographics in Dallas or Houston might be cheaper, but in ABQ it's pricing seems more robust due to less competition. 

For whatever it's worth I don't really see why SFR's would be the way to go in that city, unless like @David Torres you had a deal pipeline and flipped in conjunction. SFR from my perspective works best in a lot of post industrial towns - Chicago, Cleveland, Philadelphia, Baltimore - where rowhomes proliferated lending the stock an even greater level of standardization than most apartment building have internally along with a very low cost/unit and an outsized ARV on a refinance. The other great thing about those areas is that labor costs run high and regulatory climates are severe, bottlenecking development of new apartments and giving a unique value proposition to single families for rental conversion. ABQ may not be super easy to develop in due to national parks and reservations but its regulatory climate is much warmer (another good reason to buy there, although the whole Southwestern region is spoiled this way - no idea how good they have it). Besides that despite being an "old" city so much of ABQ was built post 1950's that there is less value to unlock through rehab as opposed to a town where the average age is 90-100 yrs old. Thin margins on rehab ARV, thin margins on rent, no unit standardization, larger lot sizes that are less tax advantageous, and frankly not enough people doing it to make an exit predictable and easy. I've spoken to quite a few people and no one seems to know anyone there with over 100 SFR's. On the east coast you can't not deal with people who have 300-400 plus SFR's and even here it's tricky to find a good buyer to unload a ~10+ unit package too. Who can you sell 20 single families to in ABQ? At what Cap can you sell them? My guess is the houses are in class C areas because they had to be, for ARV and cash flow purposes, but are unlikely to operate at a high enough Cap to justify a buyer not just moving on an APT building instead. You may not care about selling them, which is fine, but just know that going in. The other issue is low liquidity from debt providers in ABQ for that asset -- they want really stiff terms, have low lending limits. Meanwhile MF opens you up to national debt providers.

As far as BRRR goes I think it would be really great there. As I was saying competition is weaker there from new inventory, leading to more undifferentiated product than say Denver, or Dallas. So much of the stock looks simple and utilitarian. It seems like an easy enough place to create value merely by providing something "cool". MF has lots of potential as so much of it is distressed and apparently absentee owned. I would by 2 to 4 unit properties, BRRR them, keep it moving, and scale up.

As far as portfolio sales go, the hotter the market/asset class, the more of them you will see in general.