Seek Out Good Dirt

There are many ways to create or source value in the real estate sector, but I believe that whatever work you do will be amplified if you’re in desirable locations.

From our experience, everything is easier when you’re in A class neighborhoods.

The locations with nice amenities are generally the priciest and where people want to live.

The tenant base is largely high credit and generally hold some of the highest paying jobs in the market.

A higher credit tenant based generally implies they are responsible people who will (hopefully) treat their units well.

Going a step further, you generally have more pricing power given the increased demand for good locations when compared to B/C areas.

Rent rolls reflect this over time depending on the supply constraints in the area, which is why we seek out areas with high barriers for development.

If it’s hard to add new inventory into an area that people will continue to seek out, signs point to growth over time.

On the flip side, desirable locations also attract more investors and ultimately create more competition that can drive up prices.

Sometimes you can rip a good deal, sometimes you’ll be getting outbid and shocked after you project the other buyer’s returns.

We’d prefer to sacrifice scale and transact less if it means we can own in the best locations.

Having The Eye

Having a sense or lens of possibility is a pre-requisite for creating value.

Few things look good from the onset.

Need to view them from the perspective of what they could become to ultimately play the game.

Comes down to refining the lens through which you source potential to ensure it's actually feasible.

How We Treat Inspections

Inspections are one of the most important parts of the acquisition process.

They’re our opportunity to assess/source/confirm:

-Condition of all MEP

-Structural or foundation issues

-Environmental issues

-Total scope of work

-Costs for each portion of the renovation

-Lease agreements, rents, occupancy

-Legal and title issues

-A litany of other items (do 50 cats live under the property, is the neighbor always screaming at people, etc.)

We conduct a full house inspection by a licensed general inspector.

Specifically, one who has a background in construction and is familiar with our development process (we’re not worried about peeling paint).

We also do a plumbing inspection to assess the condition/material of all pipes and sewerage taps- these are done by licensed plumbers.

Sewerage issues can turn into a finger pointing game between owners and the city- something we’re always careful to inspect.

Through these reports, we verify the age/condition of all MEP and structural components.

2002 water heaters mean we’ll be accounting for this replacement cost, watch out for cast-iron.

While doing inspections, we’re also pulling all permits associated with the property to ensure no un-permitted work took place.

If the property is in turn-key condition and you can’t find a permit, not a good sign.

We then bring in our sub-contractors to provide estimates for each scope of work.

From window and siding to plumbing, we need a firm idea of what each portion of the renovation will cost and how long it will take, while still accounting for the unknowns in the form of contingency budgets.

Nobody knows what’s behind the walls, so we need to account for that what if.

We’re looking to ensure that we can add value and then rent these apartments in a profitable, long-term manner.

The inspection process allows us to solidify the inputs that determine the above.