Multifamily Creative UW Assumptions

Given that some of the markets where I am UW multi family deals, specifically Texas, are oversupplied, I can’t justify rent growth in the first couple of years. Some deals that see rent growth are ones with value add.
Our firm has been testing out other additional income generators at the property but would like to know who has had success with other income generators at their property.
For example my firm has implemented a Tech package that has achieved a $50 premium.
Are there any other income generators out there that are having success?
Also, given that equity is weary about supply specifically in Texas markets, what are other creative assumptions outside of other income generators that you are UW that Equity is biting iff on?

Edit: For HCOL markets

 
Most Helpful

I cannot stress this enough: finding an "income generator" to build into your underwriting is a really good way to go bust.  

Merely putting something like that in your model does not mean you "get" more rent.  You have to actually implement the strategy.  A real value add would be something like, I don't know, managing the property like you aren't a slum lord (and I can tell you work for a slum lord) so you can charge higher rents!  How about maintaining the building well - then you have less turnover and, voila! higher revenue.

Stop thinking about "assumptions" and focus on actually managing an asset.  The reason so many MF players are getting into trouble right now is because they treated their buildings like assets, which can be dealt with primarily on a screen and traded and sold, rather than a piece of physical infrastructure that is literally someone's home!

 

Dedicated electric parking charging spots. We build in a HCOL market and people are paying insane premiums (above the cost of electricity), for their own dedicated electric car charging spot. With such a lack of public charging, and a lot of people wanting electric cars. There's a money maker there. 

 
brosephstalin

Here's a creative suggestion - deliver something different from everyone else. When you have a truly differentiated product, you have elastic pricing power. 

If you're swapping formica counter tops or merchant building the same generic stick build product like everyone else, god speed I have no suggestions lol. 

No one on WSO and very few people in the industry understand that the way to make money is not to do what everyone else has done.  Everyone wants to be a billionaire without taking a scrap of risk or having a single original thought.  Everyone just sees that 15 years ago, buying crappy Class B/C multifamily in the South and Southwest and putting in cheap countertops and doubling the rent made people insane amounts of money, and decided that's what they'd do too.

As always, any strategy that someone is pitching to you to do as well, is already played out. The people who have a real competitive edge may not be hoarding it, but they certainly aren't sharing it til they've juiced it

 

You guys are right. Especially when any idiot who has $1M saved and went to a Grant Cardone event can compete with you on existing product. The company I work for and everyone I interviewed with has nothing to differentiate themselves besides the scale that they play into. Yet they always say they're "different, conservative and underwrite creatively." If you just want to make money that's fine, but don't expect to beat the market and be extraordinary.

 

That's what I don't get. There is nothing new to do, it's just timing. This is real estate, not some complex business.

At the lower level sub $25mm deals everyone is doing the same. Even on larger deals the ideas are the same, with more hands on management, maybe cheaper construction or cost of capital or very high leverage and pushing everything to the limit like Blackstone and other groups do. Outside of that everyone developing are doing the same steps and expertise is what differentiates or value add, it's cost of land, capital, and materials. 

I hate the whole you can't follow what others did, because that's what people with capital can do and build something today. If you don't have capital you have to syndicate and take big risks to make it, but there are many examples that have been tested where they bought a duplex and built it up owning across assets from nothing. It happened and will continue to happen.

 

"If you can't make it work with organic rent growth, or forced rent growth through capital projects, the deal isn't worth doing."

Can we stop using this term yet?  The market is going to bear what the market is going to bear.  You aren't forcing anything.  I think "self inflicted vacancy" is the flip-side of that coin when this "forced rent growth" doesn't play out.  

 

Bulk Managed WiFi - high initial upfront cost for infrastructure ($500k - $1m), but then you take a scrape on the monthly income. We pay $20/unit for gigabit speeds and charge residents market ($60-70, market dependant of course) so get $40+ profit/unit/month

Dedicated EV Charging Spaces - haven't proven this out yet so don't have a number to give

Storage Units - some of our properties have fully leased them @ $75+ a month, some have two leased. Directly correlated to average age in your building. 

5G radios on rooftop - haven't done this either but it's an option some places

 

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