All Forum Posts by: Ellie Perlman

it depends on the context. When investing in multifamily syndication, you can get 7%-8% cash on cash, which is $7K-$8K net income/profit a year on a $100K investment. 

The key is to let investors find YOU. Use social media to add value to investors (podcast, blog post, your website), and they will find you. Make sure to add an investor form on your website and schedule calls with them this way. Straight forward, but requires hard work, consistency and discipline. 

Good luck!

Atlanta MSA is pretty huge.... But I like the suburbs and see more opportunities there, as Atlanta became more expensive, and so renters are moving to the outskirts. Submarkets like Merietta, Norcross and some parts of Tucker for example, are great markets. Good luck! 

If you purchase or invest in multifamily properties, you have to have an effective and efficient acquisition process in order to successfully bid on and win deals. If you don’t, you’ll find that you’ll end up losing a lot of time chasing deals that never come to fruition. You’ll also lose credibility with investors and brokers, miss deadlines, and become very frustrated with the entire process.

Today I’m going to share that process with you to help you become more efficient in sourcing, bidding, and winning deals. 

The Process Starts with Sourcing

The acquisition process begins by sourcing your deals. You’ll decide what asset you’re going to purchase, and where you’re going to buy it. While I focus on multifamily properties, this process works for almost any asset, from mobile homes to commercial real estate.

We start by developing a list of websites where we source our deals. The list includes brokers in markets where we’re looking to buy properties, which in our case is Texas, Georgia, and Florida. Deal sourcing is a weekly activity, as we continually check with broker’s websites to see if any new properties have been posted.

Analyze the Neighborhood

Once we have a list of properties that are under consideration, we analyze the neighborhoods where they’re located. This includes a look at household income, which should be greater than $40K, crime statistics, demographics, and school ratings. You should set up your own criteria, but make sure you are comfortable with them. To find information on neighborhoods, we have access to Yardi-Matrix, but that can be costly. You can also find all of the items to analyze for free on www.citydata.com.

Initial Underwriting

If your neighborhood analysis indicates a positive area, you can move on to the initial underwriting portion of the process. This involves a phone call with the broker, where you’ll conduct preliminary underwriting based on current financials and general rules of thumb.

For us, those rules of thumb for a Proforma include income and expense assumptions on the property, renovation costs, premiums we could gain by doing value-add improvements, and financing. (Premiums is the amount expected to be gained over the existing rents after the renovation and upgrades are completed).

During the initial underwriting, we also perform sales comps and analyze recent sales in the area. If you don’t have access to databases like CoStar or Yardi, ask the broker for comps, or even from your property management company.

Property Manager’s Budget

If the Proforma looks good and the deal makes sense, we send the property manager out to tour the property. Once they complete their tour, the property manager will provide us with an operating budget and a CapEx budget based on what he or she has seen. If it appears that a new roof is needed, or the parking lot requires repaving, the CapEx budget may exceed what is feasible for that particular property. Based on the findings, we adjust our underwriting accordingly. Just be sure to have the property manager confirm the premiums proposed in the budget.

Get a Property Tax Assessment

Another key to putting your budget together is getting a property tax assessment. This often requires contacting a property tax expert to conduct the assessment so the underwriting can be updated based on the projected assessment. You should be aware that this step is one of the most expensive line items in the entire expense budget, so you want to be sure that you can rely on the expert’s findings.

Loan Quotes

After the underwriting is adjusted based on the property manager’s input, it’s time to get some loan quotes. Send your Offering Memorandum and financials to various lenders and ask for preliminary quotes. Based on their response, you’ll need to adjust your underwriting if needed.

Determine Rent Comps

Finding comparable rents is a key step in assessing a property. We call various properties that are located in a 1 to 3-mile radius of the property under consideration that is of similar vintage and with similar amenities. The calls are done in order to verify current rents, premiums, and the scope of renovations we’re planning.

Having comparables is particularly important in order to determine if the projected premiums in our proposed budget are achievable when the value-add is completed. If necessary, this is a point where we’ll adjust our underwriting accordingly.

Submitting Your Letter of Intent

After all of these steps have been taken, it's time to contact the broker to discuss price and submit a Letter of Intent (LOI). Even if you're not planning on paying full price, you should still submit an offer.

If the broker determines that your LOI and your credentials warrant it, you will be invited to the best and final round. That’s when you can refine your offer based on input and an actual tour of the property on your own. If for some reason you’re not invited to the best and final round, call the broker and ask for feedback. Was it the price? Previous deals? It’s important to know why you didn’t make that round, so you can adjust for the next property you bid on.

Tour the Property

If you’re in the best and final round, you need to tour the property. That might mean you will fly to the property, or drive if it’s close enough. Either way, you should NEVER purchase a property without seeing it first. When you go, it’s best if you take your property manager with you.

Your tour is critical in the process. You can look to see if, for example, there’s room to add a washer and dryer in the unit, or if a carport can be added to the parking area. Both would increase rents, so seeing first hand what is available to you is important.

Submit your Best and Final Offer

After your tour, do your final underwriting. Adjust your income, expenses, premiums, and other numbers as needed based on our tour findings. Now it’s time to submit your best and final offer. You can use the same LOI you submitted originally, but now you can adjust the price or the terms of the deal such as how much hard money you want to deposit.

If you win the bid, the deal is yours. If you didn’t get the deal, always ask the broker for feedback, and get as much feedback as you can. If you did win the property, it’s time to negotiate. This is where your lawyer will send a Purchase and Sales Agreement (PSA) to the seller, where they’ll hammer out the fine points of the contract negotiations and both parties will sign the PSA.

The key to property acquisition is having a process in place. Creating a defined and consistent process will help make every step easier to track and complete, and ultimately, win more deals! 

Every syndication is different, and I don't think anyone here can answer that, because some syndicators can have similar structure, but are interpreting it differently. The PPM should answer all those questions, and having a direct conversation with your syndicator is the best way to go about it. Good questions though!  

@Adam Tahir - I'd suggest reaching out to a good property mgmt company that knows the area well. They'll be able to share info on capEx costs and rehab costs. As for closing costs, it's usually 1.5% of purchase price for large properties (100+ units), so I'm not sure what would be a rule of thumb for a smaller deal. Being part of a mentoring program will help guiding you through all your questions.

As we move through months of stay-at-home orders, there continues to be a buzz of data gathering and analysis happening in real time and with sharp focus. While 38.6 million applicants have filed for unemployment, overall April rent collections proved strong nonetheless. According to the National Multifamily Housing Council Rent Payment Tracker, collections reflected an encouraging 96.6% compared to the previous month.

While there is still much to be seen as we move ahead into June and gather final data on May, overall market impacts have varied and will continue to do so as some of the restrictions are being lifted. Nationally, a downward trend of rent increases month over month for April was -0.5%, one of the most significant drops since the Great Recession. This is also evident in the year-over-year increase of April being only 1.6%.

Yet, some markets have still remained strong, particularly when focusing on the niche demographic of what's known in the industry as "renters by necessity". Renters by necessity are generally housed in Class B and C properties, as they provide basic housing needs and affordability. Some of the sharpest declines in rent growth were seen (and are anticipated to continue for a time) in Class A luxury properties, while many Americans are likely choosing to remain conservative with expenses until a time of stabilization is re-captured.

The following list shows the top 10 markets with the lowest declines, and for some even continued gains, in rent increases for renters by necessity. However, there are variabilities amongst properties within a market of course. For example, while Atlanta is showing an increase of month-over-month rent growth of only 0.08%, we are seeing an average of 18% rent increases during May 2020 in some of our Atlanta properties.

10. Baltimore, MD

Overall Population: 590,479

Renter Occupied Households: 47%

Month-Over-Month Rent Growth: -0.25%

9. Twin Cities, MN

Overall Population: 437,069

Renter Occupied Households: 55%

Month-Over-Month Rent Growth: -0.19%

8. Las Vegas, NV

Overall Population: 662,000

Renter Occupied Households: 37%

Month-Over-Month Rent Growth: -0.1%

7. Phoenix, AZ

Overall Population: 1,703,078

Renter Occupied Households: 36%

Month-Over-Month Rent Growth: -0.1%

6. Philadelphia, PA

Overall Population: 1,591,800

Renter Occupied Households: 45%

Month-Over-Month Rent Growth: -0.07%

5. Dallas, TX

Overall Population: 1,382,267

Renter Occupied Households: 42%

Month-Over-Month Rent Growth: 0%

4. Atlanta, GA

Overall Population: 523,738

Renter Occupied Households: 57%

Month-Over-Month Rent Growth: 0.08%

3. Houston, TX

Overall Population: 2,340,888

Renter Occupied Households: 39%

Month-Over-Month Rent Growth: 0.1%

2. Sacramento, CA

Overall Population: 521,769

Renter Occupied Households: 40%

Month-Over-Month Rent Growth: 0.15%

1. Tampa, FL

Overall Population: 413,704

Renter Occupied Households: 44%

Month-Over-Month Rent Growth: 0.37%

Sources:

Matrix National Multifamily Report - April 2020

WorldPopulationReview.Com

RentCafe.Com

@Matthew Odou - I live in SoCal and invest in TX, FL and GA. The first step is to research potential out of state markets and choose 1-2 markets. Look for markets with population growth, job growth (including impact from COVID) and rent growth. I try to stick to up to 45-60 min drive from downtown of a major MSA, where all the jobs are. You can use city-data.com, scout neighborhood and other free market reports that Yardi and other large brokerage firms like NKF and CBRE publish. Then, fly/drive to those markets, drive around the neighborhoods, meet with local brokers and start establishing relationships there. That's exactly what I did.

Good luck!

Ellie

I prefer Wyoming actually. Full anonymity, low fees, and you can do it online within a day with services like wyomingregistrars.com. Their laws are also very protective. Delaware is more expensive. If you want to maximize anonymity, set up a company with a name that is not related to yours, and mark it as manager -managed company (and not as owner-managed company). Nobody will have access to the information about the company's owners. 

When you put as little as possible, it means that you are over-leveraging, which I don't recommend. A healthy LTV (loan-to-value) is no more than 80%. You want to keep enough gap between your net income and debt payments. When debt payments are high, you are at a riskier position (which is in part what happened in 2008).

Hope that helps!

Ellie 

@Chris Mooney - we really like city-data.com, which is free, as well as Scout Neighborhood (info on crime, schools, demographics, etc). We also use YardiMatrix for market reports (though it's about $2K/market/year). Many large brokerage firms like CBRE, NKF, etc have free market reports. Look it up on their website. Yardi also has free reports on their website.

Good luck!