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Multifamily Acquisitions: TLC (Timing. Leverage. Competition)

 

Timing.  Leverage.  Competition.  TLC.  All three play a significant role in completing multifamily acquisitions.  It’s similar to the old adage for printing services- quality, speed or price; pick any two.  Seldom will a single investment property transaction present positive attributes in all three categories. 

Real estate, and multifamily real estate, is a slow moving asset class.  When the stars align a sale can be completed in perhaps five to seven working days.  The norm is 45-60 days.  And like any transaction with multiple moving pieces it ain’t over till its’ over.

TIMING.  There is no such thing as perfect timing except for in hindsight.  Timing multifamily buys is no different than attempting to time the stock market.  It can happen,  But even the “smartest guys in the room” blush when their great buy hits a yield-popping home run.

Timing has to do with availability of product and financing.  It’s the big “so what”.  So what if there are deals for sale by the boatload, yet no mortgage loans.  So what if mortgage money is plentiful when available inventory is mostly old and dusty.

LEVERAGE.  Availability of debt plays an important role in the ability of most buyers to acquire.  As CMBS has died off (with a possible comeback pending) and mortgage underwriting has become tighter than most Cuban cigars, the average buyer is removed to the sidelines in favor of all cash buyers.

There are two types of all cash buyers: smart ones and everybody else.   My guess is the 80/20 rule applies here whereas twenty percent of the all cash buyers really understand the multifamily asset class and eighty percent are following the herd.

Like people getting into gold at $1,400 an ounce (this being their first purchase ever) or condos in Brazil to flip.  How many of the people buying these products really understand their valuation?  Perhaps two of ten.  Maybe. 

COMPETITION.  Defining competition is really market specific.  Every buyer in the world, even hungry buyers, will not buy a deal in New York City.  It doesn’t matter that current supply is tight, new construction is limited, incomes are rising, unemployment is dropping.  The market is of no interest to that wealth management group in Rockville Maryland tasks with buying deals in the Washington DC market.

Contrary to this example, I would bet the commercial brokers in Charlotte know that on any deal of size they can expect offers from group #1, group #2 and group #3.  Why?  Because these three groups bid on everything in that marketplace.

It is important to know your competition by market and by asset class and size.  Certain buyers only look at value add, others only iron-clad Class A.  Thus, it’s important to know the competitors in your market(s) and know their criterion.

Reprint from MultifamilyInsight.com    by John Wilhoit Jr.

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Categories: multifamily, Uncategorized
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