Multifamily Real Estate Investment
MRE EXCHANGE
Manny J. Herrera
Introduction Thank you for watching this presentation. My name is Manuel J. Herrera, a Florida licensed real estate agents associated with Century 21 Beggins Enterprises, and founder of MRE Exchange Group I specialize in Multifamily Real Estate portfolios. I provide comprehensive support in connection with the acquisitions, sales and Financing of multifamily real estate Investment transactions. manuel.herrera1@century21.com (813) 951 5880
What is a multifamily Real Estate Property
A multifamily real estate property is a single or multiple buildings set up to accommodate more than one family, living separately.
Multifamily real estate can range from a duplex, a 4plex , to an apartment complex of hundreds of units .
Duplex
A building with two houses side–by-side , sharing a common wall
4-plex
A building with Four housing units.
Apartment Complex
An apartment complex is a group of buildings that contains multiple rental housing units.
Why Multifamily is a Good Investment ?
• Multifamily Real Estate Investment is not as risky or volatile as stocks, and and bunds.
Low Risk / High Returns
• It offers higher potential returns than most fixed-income assets.
The investment is backed by hard assets: the building and the
Solid Collateral
land.
Investors benefit from predictable cash flows ( the rents), and capital gains (property appreciation).
Cash Flow and Capital gain
Tax Efficient Repairs, Renovation costs, maintenance, depreciation are tax deductible. Multifamily Real Estate is 1031 Exchange friendly
• During recession, the demand for multi-family real estate grows.
Economic resilience
• During inflation, rents go up and multi-family property prices rise.
• During recovery, they stabilize
Multifamily Real estate is leverage efficient, because It lets you use 75 to 80 % financing to purchase a property while your returns are based on Cash on Cash invested.
Leverage Efficient
As a consequence of being leverage efficient, Multifamily
Real Estate investment is readily
Scalability
Scalable
1 2 3 4 5 6 Investors $2,879,995.8$3,310,340.0$4,965,510.0$6,620,680.0$8,275,850.0$9,931,020.0 purchase price $14,399,979.$16,551,700.$24,827,550.$33,103,400.$41,379,250.$49,655,100. $2,879,995.80 $3,310,340.00 $4,965,510.00 $6,620,680.00 $8,275,850.00 $9,931,020.00 $14,399,979.00 $16,551,700.00 $24,827,550.00 $33,103,400.00 $41,379,250.00 $49,655,100.00 Investors purchase price
The Business Model
The Business Model
In the multifamily real estate business, investors engage in a strategy that involves acquiring a multifamily property, renovating it if needed, holding it for rental purposes, stabilizing its operations, and ultimately selling the property to generate potential capital gains.
Acquire
Renovate
Re-sell Hold
To optimize their returns on investment, investors employ bank financing to leverage their property acquisitions. This approach allows them to maximize their purchasing power and take advantage of favorable interest rates offered by banks. Stabilize
How it works
The focus is on multifamily real estate that it is acquired and then rented out to Tenants . Tenants, pay rents to live in the properties. Some of the income from the rent is used to pay for operating expenses , such as:
• Property taxes,
• Utilities,
• External illumination,
• Trash collection,
• Maintenance,
• Management expenses, etc.
After subtracting the Expenses from the total income, we arrive at The NET OPERTAING INCOME.
Multifamily Properties Investments , as any investment instrument, are valued based on their Rates of Return. (CAP RATE)
The example shows a 4-plex with a total gross rent in the amount of $47,532.00 . Other incomes and concessions , minus total expenses , bring to the owner an annual net operating income of $36,304.40. Notice the property valuations a different Capitalization Rate.
Acquisition Strategies
Core
1. Acquire stabilized Asset type A, and B+.
2. Keep them as they are,
3. Hold them for some time.
4. Sell them in the future,
Core Plus
1. Acquire Asset type B, B+.
2. Make minor Improvements,
3. Update rents.
4. Improve management, marketing ,
5. sell them, in the future, .
Value-Added
1. Acquire Asset Type B-, C. 2. Complete a major renovation that takes months or years to complete,
3. Hold them for some time.
4. Refinance loan
5. Sell them in the future.
Risk Levels
Our Process
Our Process Identify emerging markets Acquisition strategy Property selection Underwrite property (Financial analysis ) Tour the property Invite investors Invite banks Issue letter of intent Conduct due diligence Sign P&S Contract Closing
Identifying Emerging Markets
Emerging Markets are new growing or correcting markets with the following profile:
Growing job opportunities and employment rates that surpass the national average.
A growing population that is forecast to continue growing.
Future real estate development plans.
Affordability (based on price to rent ratio)
Increasing absorption rate.
We actively pursue multifamily real estate properties in emerging markets at any given time.
Florida vs National Market
Employment overperformed the national market across all sub markets in Florida. Equally impressive results were observed in property price growth and net operating income, Higher mortgage rates were the primary driver affecting the multifamily Real Estate Market these past years. Annual interest rates increased from 3.3% at the beginning of 2020 to 6.31 percent, by the second quarter of 2022. The highest increase on record going back to 2000.
The Tampa Multifamily Inventory
HILLSBOROUGH COUNTY PROPERTYAPPRAISER’S OFFICE DOR CODE MANUAL
Tampa Multifamily Inventory
0 50 100 150 200 250 300 310 320 330 340 350 396 C A D B E S Asset Classes Volume 2022
Tampa Market
The Tampa Apartment Investment Market Index (AIMI or Index)
as of the first quarter 2023 is 93.9. The Index increased over the quarter (1.9%) but decreased over the prior 12 months (-26.7%).
The annual decline indicates that it may be more difficult to find attractive investment opportunities compared with the prior years. Investors are paying more per dollar of property income compared with one year ago.
Acquisition Strategies we Support
1. “Core” is considered the safest strategy and the one that’s closest to fixed income (bonds) in terms of risk and potential returns.
2. It tends to use less leverage than other strategies, very little about the property changes, and cash flows are stable and predictable.
3. Properties tend to be in major urban centers with plenty of demand.
1. Acquire stabilized Asset type A, and B+.
2. Keep them as they are,
3. Hold them for some time.
4. Sell them in the future,
4. Suitable for passive, conservative investors, interested in steady, predictable, higher than average returns .
5. Lower Capitalization Rates , long holding periods ( 5 to 10 years)
Core
1. “Core Plus ” is considered the next safest strategy and the one that’s higher than fixed income (bonds) in terms of risk and potential returns.
2. It tends to use more leverage than core strategy, some visible changes about the property are made, and cash flows are higher than normal.
3. Suitable for less conservative investors in look of higher-thanaverage market returns and some capital appreciation.
4. Holding period tend to be up to 5 period or less.
Core Plus
1. Acquire Asset type B, B+.
2.Make cosmetic Impro vements.
3. Update rents.
4. Improve management, marketing ,
5. sell them, in the future .
1. “ Value-Added” is considered the most lucrative strategies. Double-digit returns , with significant portion the returns coming from capital appreciation .
Value-Added
2. It tends to use more leverage than core , and core-plus strategies, and loan refinancing is expected
3. Significant changes about the property are made, and cash flows fluctuate due to high vacancy during renovation.
4. Suitable for more aggressive investors looking for higher cash-on-cash yields, and participation in capital appreciation.
5. Holding period could be short for higher property appreciation ( 5 to 7 years )
1. Acquire Asset Type B-, C. 2. Complete a major renovation that takes months or years to complete,
3. Hold them for some time.
4. Refinance loan
5. Sell them in the future.
Example of Acquisition Financial Analysis
Property Assumptions
• The target property : Multifamily Real Estate property .
• Number of units : 87 units.
• Location : Central Florida
• Submarket: Orlando, Osceola County.
• Total rentable area : 83,735 sf.
The property is assumed to be 95% occupied. Property taxes are estimated at 0.78% of the final purchase price. Management fee is estimated 3% of Gross Operating Income .
Source and use of funds
The projected acquisition will be funded with senior debt in the amount of $9,360,000 at a (65% LTC), with an annual interest rate of 5%, and a loan term of 30 years and 5-year maturity. Investor Equity is estimated in $5,299,350, which includes $258,000 Acquisition costs and reserves
Acquisition and Exit Assumptions
For the acquisition and exit strategy, we've considered a purchase price in the amount of $14.4 million for a going-in capitalization rate of 6.41%. Exit Cap Rate is estimated in 6%.
Operating Assumptions
In order to factor in loss income during rent stabilization , the project includes increase vacancy, concessions and unpaid rents during the first two yeas .
Property 5-year Proforma
Expected Financial Results
By securing 35% of the purchase cost in equity investment, plus reserves, the projected acquisition expects to achieve the following financial results:
Our Mission
Our mission is to become the premier platform for multifamily real estate transactions.
By providing an organized, efficient, and secure environment, we aim to be the most reputable and secure source for acquiring and selling multifamily properties.
Our comprehensive support covers acquisitions, sales, financing, and property management. Through strategic collaborations with industry professionals, we ensure our clients receive unparalleled assistance.
By facilitating multifamily transactions, we contribute to the growth and development of thriving communities.
