Acquisitions Update

In May, the pace of deal analysis remained steady. This month, we reviewed and analyzed 7 multifamily investment deals. However, after thorough examination, we decided not to extend offers on any of these deals.

Our focus remains on identifying properties that align with our strategic investment goals and offer strong potential for value creation, and none of the deals reviewed this month met our criteria for pursuing further.

Let’s Talk Numbers

When underwriting potential deals, we estimate Total Operating Expenses (OpEx) to be approximately 50% of Effective Gross Income (EGI). While 50% is a rule-of-thumb, it helps weed out the bad deals quickly, and maintain a conservative approach to our analytical process. Lately, many deals we have reviewed show OpEx closer to the 30-40% range of EGI. This tells us one of two things: 1) The income statement may be underreporting or missing expenses, or 2) The total EGI may be overly optimistic and aggressive.

Of course, there are many other metrics we consider when underwriting a deal, but the OpEx-to-EGI ratio is a quick indicator of whether a property is worth further exploring.

Market Update

When will the Fed begin cutting interest rates? Will there be another rate hike before a rate cut? In a recent interview, Neel Kashari, President of the Federal Reserve Bank of Minneapolis, “stressed the importance of patience”. It seems likely that interest rates will not decline for the foreseeable future, so we are taking that into account when underwriting multifamily deals. Check out the full article about interest rates here.

Informed Investing

• Savvy investors understand the importance of deploying money to work for them as a means to build wealth. Check out this recent article where real estate mogul, Grant Cardone, illustrates the power of investing versus letting money sit idle in a savings account.

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