Multi-family, the winning model
# Entrepreneur of the Week Eyal Hasson # Post 6
Hello friends
What a wonderful week I had with you, first of all I want to thank again this wonderful forum that gave me the stage and Avi Ben Mordechay who approached me. Thanks to everyone who read and commented both here and in private. Nice to get feedback that what I wrote was helpful and interested the friends.
One last personal thing - I decided to engage in real estate because I realized and felt that I enjoyed the creativity, the dynamism, the passion in it and working with lots of good people along the way, a type of activity that has space combined with the excels. And the main thing - that by doing so I also manage to help more people, which fills me.
I realized that this is my vocation - that this is what I would love to do even if I do not receive immediate monetary return because I just enjoy!
By and large, many of us want to eventually cash flow - to retire (sooner or later ..) on the beach in Zanzibar and think about the next vacation while our assets yield what we need for our current.
But - is the way to achieve this result and the pace for it one?
If I only want a current flow, I will try to buy income-producing properties and maximize the return by the BRRRR method that many have already talked about here. Most of us do not have enough capital to move forward and build only on rising asset value to extract capital through refinancing, it takes time and also does not always depend on us - will the market rise, is the asset stable in terms of net income so we can service the bank debt safely?
If I'm looking for a relatively “quick” capital increase, then improvement deals are the channel. It is already trite to talk here again about the risks and the great uncertainty in this type of transaction - right?
So what are we at Urbani Pro actually doing? And why?
So when we realized that we're actually looking for a kind of both, a product that allows for a steady return, enjoys relatively cheap financing and embodies a relatively quick value-adding potential that depends mostly on us - we came to the multi-family realm.
The main idea in multi-family transactions is the simple business idea - managing a company to increase its value, measured by its NOI (net operating profit before depreciation, financing) and using a multiplier or capitalization factor in the real estate language, the cap rate. This is the essence of the value add strategy in multi-family transactions.
That is - if we buy a property at a price per door that is low in relation to the market, in an area with a clear and stable demand for affordable rent, with a clear potential to increase occupancy and / or the rent that the complex produces, we will renovate what is needed to get the rent in the area. , And we will manage it efficiently so it is likely that its value will increase inherently over time.
Why do you ask? Because both banks and entrepreneurs like us (but those who are already looking to buy a stable property already and not one that needs renovation and increase in value) will examine the value of the property according to the same parameters - NOI divided by the cap rate accepted in the area.
And if we have improved this parameter and also bought well in advance, we will see higher values than the total cost of the transaction in the purchase, which will allow us to refinance within 3 to 5 years and extract significant capital for us and investors that will continue to the next multi-family transaction. And sometimes - we'd rather sell if the right offer comes and again - just to keep rolling the principal and profits into the next deal.
Small example:
Together with the local partner and the investors, we bought a complex of about 60 apartments at a price of $ 2.45M. The price per door was $ 50,000.
We took out a loan for 65% of the total cost.
The goal is to increase the total rental income from about $ 30,000 per month in purchases to $ 39,000 per month after one year.
Investors see every year (except the first year in which the improvement is made) about 9% return on money
And after stabilizing the rent, and assuming an organic increase in the market each year by about 3% in the rent, you reach the end of year 3 (flow with me .. circle the numbers for the purpose of the example) to a NOI of $ 250,000.
The cap rate in the area is 6.75%.
We did ri-fi at the end of year 3 - the value rose to $ 3.7M. We extracted the equity by a loan of 70% LTV
And we extracted over 70% of the equity back.
We were left with a small equity in the transaction, with an income-producing asset that now gives a higher return (because the equity remains small) and an option to reinvest the capital raised in the next transaction.
And if we sell - which is the plan - after two more years (a total of 5 years yes?) Investors will see over 18% on the money on an annual basis.
Are you interested? We are promoting similar projects these days in Houston, Texas, one of the hottest markets in the United States today in real estate in general and such deals in particular.
Feel free to contact me in the comments or in private
[email protected]
www.urbanipro.co.il
In the pictures - the multi-family complex in Houston and it is impossible without some pictures of fine wines for the weekend (just… these are wines from my last birthday)
Responses