The $0 Value Add Hack

Happy Tuesday! This is The Real Deal. The email that tells you the latest that's going on with Real Estate in plain jane english.

In Today's Email:

  • 🌇 Apartment Investors Head South
  • 🔮 Marcus & Millichap's 2022 Forecast
  • 💰 The $0 Value Add Hack

Apartment Investors Head South

There was a great article by the Wall Street Journal that came out recently highlighting where a lot of investors are heading towards.

Landlords say they are following migration patterns of workers and their employers, who relocated to Florida, Texas, and other southern states during the pandemic.

These states’ warm weather, business-friendly governments and laws, lower taxes, and fewer regulations have been attracting companies and workers from California, the Northeast, and other corners of the country.

In 2021, investors poured a record $335.3 billion into apartments across the country with nearly a quarter of it going to these four sunbelt metros: Dallas, Houston, Atlanta, and Phoenix.

Marcus & Millichap's 2022 Forecast

Marcus & Millichap recently released their 2022 Forecast Report and there were some serious gems to be found in there.

I'd suggest reading the entire report, but if you don't have time, he's the summarized version down below:

1. Nation-leading rates of job creation and household formation place Orlando and Las Vegas at the top of the U.S. National Multifamily Index for 2022.

2. After a banner period for multifamily properties in 2021, fundamentals are projected to improve even further this year, albeit at a more typical pace. Housing demand will continue to grow, surpassing a record 400,000 units of construction to keep availability low across quality tiers.

3. The search for yield amid an increasingly competitive bidding environment will compel investors to consider assets across a greater selection of markets. This corresponds with a demographic shift to secondary/tertiary cities that is benefiting apartment operations.

4. Anticipated gradual increases in interest rates this year will likely have little impact on multifamily investment. However, unexpectedly high inflation could prompt the Fed to raise rates much faster, potentially curtailing investment sales activity.

The $0 Value Add Hack

We recently closed on a "12-unit" in Oak Harbor with some of our favorite clients, Moni and Andy.

Moni and Andy have had a wildly successful real estate story so far with just shy of 100-units in their portfolio in under 2 years.

But the topic of today's deal was how their latest turned out to be a slam dunk.

After due diligence, we found out that there were 2 more units not disclosed.

Surprisingly, we've seen this happen before.

Listings are usually a game of telephone depending on the Seller and Listing Agent and things can often be lost in translation.

This mistake on their part turned out to be a huge win for Moni and Andy.

Let's say those two units each fetch $1,250/unit. Multiply that by 12 months and you get $30,000/year and, on the backend, the Lender will look at that property as a 5 cap.

Now with those 2 additional units in the picture, that equates to $600,000 in overall property value ($30,000 / 0.05)!

The lesson to be learned here? Always be thorough in due diligence for discrepancies. They're always there and sometimes they can be very well worth your time.

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