Apartment Metrics when Evaluating Multi-Family Syndication

[Duke Giordano]

Hello All,

I was curious if there are target metrics specifically in respect to the following from the [perspective of Risk/Target profile of deal:

1. Purchase price per unit: is there a target range for this price per unit based on deal cost?  How much of this changes based on asset class (A,B,C) vs Deal location or are some of these numbers universal?

2. Average Rent Per Sq Feet: When looking at a multifamily property is there an average Rent per Sq Ft?  Obviously this would be. number derived from Average Sq feet of units to average rent.  I am guessing this is somewhat market dependant but not sure if there is a rule of thumb?

3. Average Rent per unit compared with average income in the area: is there a specific range/metric that is targeted or does this not really come into play?

4. Renovation/Cap Ex cost in relation to total Purchase price: Is there a target that is looked at in relation to this percentage?

5. Bedroom Diversity/Breakdown: When looking at a Multi-Family Deal is there a target Bedroom Diversity: for example, how many of the total units are 1 bedrooms, 2 Beds, 3 Beds etc?  Does this number effect risk profile/target of deal?

Thanks in advance for your thoughts/input,

Duke

[Brian Burke]

Originally posted by @Duke Giordano:

Hello All,

I was curious if there are target metrics specifically in respect to the following from the [perspective of Risk/Target profile of deal:

The only "rule of thumb" I've found to be true in real estate is "research equals success."  Things like 1% rules, 2% rules, 50% rules, dollars per unit or square foot and all of that are what cause people to fail in real estate, either because they miss deals (or never find them at all) and get frustrated and quit, or they buy deals that conform to the "rule" but aren't good deals at all.  There are too many variables and nuances in real estate to apply any "target metrics" at all.   

No.  A class B property might be $75,000 per unit in Columbus and $325,000 per unit in San Jose.  Or they could even be $75,000 per unit on one side of town and $150,000 on the other.

We have properties in the same metro area renting for $1.00 and $1.40 per square foot.  It's area dependent.  Even more confusing, 400 SQFT one-bedrooms would rent at a much higher $/SF than a 700 SQFT one-bedroom even in the same apartment complex.  So, unfortunately, no rule of thumb to be applied here.

 
We have units in a census tracts with $27K median income renting for nearly the same rent as a complex in a census tract with $66K median income.  While the median incomes might tell you something about the depth of the market or the runway left for increase, it might also tell you nothing at all.

No rule of thumb here because you could have a 1970-built property that needs extensive renovation, and a 2000-built property that needs light renovation.  Even though the purchase prices for the two would differ, you'd find little correlation to the purchase price and the renovation.

 
Perhaps I might call 1/3 one-bedroom and 2/3 two-bedroom ideal...but it's not a rule of thumb.  One-bedrooms might do far better in a location heavily dominated by hospitals and medical office where there are a higher concentration of single workers, and two-bedrooms might do a lot better in an area near a large university where students double-up with roommates.  Micro-location influence has a lot to do with successful unit mix ratios.