Despite an economic climate that’s becoming more and more uncertain, we’ve doubled down on our intent to keep buying multifamily deals in 2019. We’ve detailed extensively why we believe in this space. The cash flowThe money that is left over each month or year from the property's income after paying for operating costs, mortgage, taxes, and other expenses. Positive cash flow occurs when the income exceeds the expenses, while negative cash flow indicates that the property's expenses are higher than the income it generates. View Definition. The appreciationThe increase in the value of a property over time, usually due to factors such as market demand, economic growth, infrastructure improvements, and inflation. View Definition. The tax benefits. These are such compelling reasons that it’s no wonder there is so much interest, and competition, in the value-addValue-add is a strategy where an investor or property owner seeks to increase the value of a property by making significant improvements or changes to it. The goal is to enhance the property's appeal, functionality, and income-generating potential, which can lead to higher rental income, increased property valuation, and improved overall performance. View Definition multifamily arena.
How then, are we able to continue finding deals that remain conservative while at the same time deliver great returns for our investors?
Simply put, we look at a lot of deals. As one of our mentors says, “you have to turn over a ton of cards before you find the Ace of Spades.” The good news, as of February there is a lot of product on the market. The year for multifamily really kicks off after the NMHC conference. This past week, we’ve been on the road touring deals. Between Houston, San Antonio and Austin we toured 13 deals. These 13 that we decided to take a closer look at were just a sub set of those that came across our desk.
In this article, we highlight how we’ve introduced focus to our evaluation process. This is necessary to effectively look at large quantities of deals, saving time and down line headaches. No matter your hustle you can’t give every deal in every market serious time in underwriting, and you sure can’t afford to miss the really great opportunities. Here are five ways we implement focus to stay on top of promising deals while avoiding ones that are less so.
- Set your criteria and stick to it
This can seem somewhat obvious but is also a good reminder to stay focused and not fall victim to the shiny object syndrome. We preach it internally all the time–stay focused on what we do. For us, the criteria is pretty simple: the property must be located in the Austin, San Antonio or Houston MSA, and it must have a value add component. If it doesn’t meet one of those factors, we move on quickly to protect our time. Other criteria might be unit count, purchase price, year built, etc., but having that list defined eliminates a ton of wasted energy. - Make broker relationships efficient
It’s true–we couldn’t go a whole article without mentioning relationships. In this case, it’s how we leverage relationships with brokers so that they can help screen deals and do the work for us. They all know our criteria. They know things like our preferred deal size and which neighborhoods we prefer over others. When a deal comes through that checks most of those boxes, you bet we’re getting the first phone call. And when we get that call, we know we have a deal worth investigating. - Stack rank your markets
This year we’re actively monitoring 3 markets, but we don’t treat them all the same. One goal in 2019 is to balance the portfolio and break into Houston. We are spending more time looking at opportunities there and in Austin than we are looking at the ones in San Antonio. Now, that doesn’t mean we aren’t making visits to San Antonio communities, but it’s a mechanism that helps us prioritize which deals to look at first. However, we always look for the unfair advantage. When we saw a deal last week in San Antonio where our Property Manager used to live and manage (and continues to have a great relationship with the owner), we moved that back up the list. We have a competitive advantage at that asset and will take full advantage of that. - Evaluate the community’s vintage
Most of the value-add properties you will find in Texas tend to be built between 1980 and 2005. You can make an argument (and many brokers want you to believe) there is value-add opportunities in communities built through 2015, but we often see less upside than we need. For Wildhorn, we don’t have a hard and fast rule about the age of the property. For the right price, we prefer newer buildings relative to older ones simply due to lower ongoing maintenance. In fact, we just moved a 2003 deal up higher in the pecking order than a 1979 deal simply due to the age. - Empower your team
We have 3 analysts that help us with underwriting. They have been trained to use our specific model and are skilled at going through Rent Rolls and Financial Statements to find inconsistencies and opportunities. Once we have a first underwriting draft on a deal we are considering, we met to review and discuss. From there, we either de-prioritize or prioritize that specific deal based on how the performance looks. But, none of that would be possible without having a trained team around you to parse through the deal and details.
We love the acquisitions side of the business. Walking onto a property, understanding the story and the bones and coming up with potential business strategies and ideas. But, if you’re going to be successful in getting deals, you’ve got to focus on the types of deals that fit your business.
Andrew Campbell is a native Austinite and Managing Partner at Wildhorn. He is a real estate entrepreneur who first broke into the business in 2008 as a passive investor. In 2010 he transitioned into active investing and management of a personal portfolio that grew to 76 units across Austin and San Antonio. He earned his stripes building and managing his personal portfolio before founding Wildhorn Capital and focusing on larger multifamily buildings. At Wildhorn, he is focused on Acquisitions and maintaining Investor Relations, utilizing his marketing and communications background to build long-term relationships.
