Specific Property Criteria
When looking to purchase anything in life, you must first decide on a few factors before you begin your search. Take clothing, for example. Before you go shopping, you typically have some idea of what you are looking for—a shirt, pants, hat, purse, skirt, or a new pair of shoes. Let’s say you are shopping for shoes, you have already narrowed your search to that particular item. However, you still need to determine what kind of shoes you need or want. Will they be worn in hot weather or cold? Will they be worn in dry or wet conditions? Will they be used for utility or fashion? The list goes on and on. With each choice, you narrow your selection until you know exactly what you want. This will save you time when you go to the store because you do not have to look at every pair of shoes on the shelves. The same is true for real estate, and even more specifically, multifamily real estate.
So, how do we determine what criteria we use to find our next great investment opportunity? This will vary from group to group and each group has reasoning behind their specific criteria. What follows is the criteria we use in our search for multifamily real estate including our reasons, in the order we filter our deals…
Southeast: We chose the Southeast because of the close proximity to our team’s home location. We want to be able to visit the properties with relative ease and minimal cost. This also helps when scheduling tours of potential deals. The Southeast is also ideal because of its historic population growth. We want to see a population growth that well exceeds the current supply of multifamily properties.
Diverse Economy: We are looking for cities that have a good variety of
ndustries that support their economy. We do not want a city with a high concentration in one sector. We are also looking for cities that have a local presence of some blue chip companies. A blue chip is a nationally recognized, well-established, and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. They are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.
These criteria have helped us to narrow our search to Raleigh NC, Charlotte NC, Greenville SC, Jacksonville FL, and Atlanta GA. We search in the Metropolitan Statistical Area (MSA) of each of these markets, which simply means that it is not limited to downtown but extends to the suburbs. This helps to eliminate deals across the country that do not fit our criteria. If a deal comes through in Texas, it is immediately eliminated based on its location outside of our search criteria.
This is the age of the property. This is sort of a moving target and has some influence from the surrounding market. However, our general criteria is a vintage between the years of 2005 and 2019. Typically, deals older than 2005 will require more renovation than a newer property and may have greater deferred maintenance. We do not look at anything newer than 2019 because it is most likely not stabilized (occupancy greater than 90%). To help identify the vintage of a building, properties are marketed as Class A (high quality
nd newer), Class B (one step down from Class A and generally older), and Class C (over 20 years old and in a less desirable location). We look for Class A and stabilized Class B+ with light value add.
This is one of the final, but most important search criteria. Once a deal has passed through all the previous filters, it must meet the return criteria we demand a property achieve for all of us as investors. On every deal, we invest alongside our investors on the LP (limited partnership) side. This gives us an alignment of interest that many groups cannot offer. We do not put an offer on any deal that we would not personally invest in or that we would not invest in if another group offered it. The specific return criteria change from deal to deal, and each deal has the specific returns outlined in the Private Placement Memorandum (PPM).
Many of our investors ask about current deals coming out and how soon we will have another deal to offer for investment. My answer is always the same, “We are constantly working on finding the RIGHT deal and not just the next deal.” When you see our next offering come to you via email or our printed deal offering, you can rest assured that the proper amount of scrutiny was applied so that you can truly enjoy the peace of mind that comes with your passive returns.