For corporate managers who are
looking to increase their personal
investment holdings, multihousing units are a solid place to start, says
Roger McElroy, Vice President of the
Multi-Housing Investment Group in the
Dallas office of Grubb & Ellis Company.
“In most cases, you’re not only making
money from the operation of the complex, but you’re also concurrently enjoying the appreciation of the asset,”
McElroy says. “That’s where a lot of
investors make their money. They hold
the property for three to five years and
then sell. If you buy in the right area and
don’t overpay, when you sell it, it has
appreciated in value. That’s the second
part of the income stream.”
Smart Business talked to McElroy
about finding the best multihousing
units in which to invest.
What are the advantages of working with a
buyer’s representative?
Multihousing buyers typically work
with the seller’s representative, whose
objective is to sell you that one particular property. But buyer’s representatives
have no vested interest in any one particular property; instead, their objective
is to find the property that’s best for you.
A good multihousing buyer representative can be particularly helpful to out-of-town buyers. Typically, the buyer’s rep
will expose you to a greater number of
potential properties. This includes properties listed by one-man and two-men
shops that don’t always expose the properties publicly or unlisted properties that
are available but not made public.
Buyer’s reps can provide price comparisons and analyze geographic variables
and the potential for appreciation. He or
she can also share apartment research,
which will give you insight on apartment
trends, including rents and occupancies.
A good buyer’s rep also will arrange
showings that accommodate your
schedule, help establish your credibility
with the seller and prepare a Letter of
Intent.
Finally, a buyer’s rep will always try to
look ahead and plan an appropriate exit.
What kinds of additional help will a buyer
need?
In most cases, a buyer’s rep will try to
refer clients to professional services so
the transaction is successful. These professional services include, but are not
limited to:
- legal assistance
- insurance agents
- a management company that specializes in like properties
- a mortgage broker who can introduce the buyer to financial institutions
- construction companies for remodeling and/or renovation
- other third-party services as required
Are most multihousing buyers local or from
out of town?
At least half of the buyers seem to be
from out of town, and out-of-town buyers really need local guidance. A lot of
folks come to Dallas to buy from the
East and West coasts, including Florida
and California. In Dallas, they can buy a
lot more for their money because we
haven’t experienced such sky-high
prices. Those potential investors know
that Dallas is growing. The metroplex is
now the fourth-biggest in the U.S., after
New York, Los Angeles and Chicago.
You get a lot more for your money in
this area.
A good buyer’s rep can take a microscopic look at and analyze submarkets.
There are a lot of comparatively minor
factors, like areas where public schools
are stronger, where crime rates are
lower and where appreciation rates are
higher. Also the 10 cities that are part of
the Dallas metroplex sometimes have
different tax rates.
Out-of-town buyers also save a great
deal of time by working with one source.
A good buyer’s rep will provide you with
market sales comparisons and advice on
potential acquisitions by analyzing each
complex, its geographical location and
its potential upside.
How can sales and rent comparisons benefit buyers?
Sales comps are actually sales prices
for similar apartment complexes. They
are limited to similar transactions within
a geographical area near the complex,
maybe in the same county, and they
include cost-per-foot and cost-per-unit
versus other properties that have recently sold.
They allow the buyer to compare each
property with a side-by-side analysis.
The buyer’s rep is vital to this process,
since he or she can share a vast amount
of multihousing research, including
ALN, CoStar, Real Capital Analytics,
MPF and more.
Knowing these numbers beforehand,
including net operating income, is a
great negotiating tool.
ROGER McELROY is Vice President, Multi-Housing Investment Group, in the Dallas office of Grubb & Ellis Company. He can be
reached at (972) 450-3202 or [email protected].