Investment properties Featured

8:00pm EDT July 26, 2008

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 roger.mcelroy@grubb-ellis.com.