In case you missed it here are all some of the highlights from our conversation with Frank:
- Has over 10 years experience in institutional multi family acquisitions and management
- Is an asset manager of a portfolio worth of $400 mill.
- Founder of Ashcroft Captial http://www.ashcroftcapital.com/
- Loves to travel!
Nuts and Bolts:
Why we love investing in large multi family apartments communities!
- Cashflow is KING! Multi family properties have greater cashflow than single-family houses (SFH)
- Amortization: your tenants pay your mortgage for you!
- Forced appreciation: Increasing the value of the property by increasing the NOI, whilst cashflowing, through value-add measures like:
- Increasing rents by renovating apartments
- Increasing operational efficiencies that reduces the operating experiences
- Remember CAP Rate = NOI / Property Value rearrange
- Value = NOI / CAP Rate
- You increase the NOI by $1 you increase the value of the property by $10 (ie: 10% CAP).
- Easier to obtain financing: Multi family apartments have a lower risk of default on the debt than single-family houses.
- Banks underwrite the multi family deals: SFH the banks underwrites the borrower, not the deal.
- Less volatile assets
- Multi family properties we like:
- Great area
- Great occupancy
- Under market value
- But the owner hasn’t taken care of the property and needs a spruce up!
- And/Or, operating efficiencies haven’t been maximized by current owner
- Renovating apartments: Rule of thumb – Minimum amount spent per unit is proportional to how much the rents will increase.: ie: minimum 25% increase in rents: $500/ month currently – renovated: $625 that’s an increase of $1,500/year which means we spend $6000 per unit = $1,500 / 25%.
- Key Team Member: Property Manager! Get a property manager to partner with you, they will be incentivized to make the property to perform at its peak!