Insights

There was a time when finding a value-add multifamily investment was relatively straightforward. A building had below-market rents, an aging lobby, an inefficient expense structure or a collection of units that had not been renovated in years. The investor could buy the property, spend money on improvements, increase rents and create value. The difference between the existing income and the potential income was often large enough to make the investment work even if the market

There is a simple mistake that investors make when evaluating an apartment building: they focus too heavily on whether they can afford to buy it and not enough on whether they can afford to own it. The distinction matters. A property can appear attractively priced on a per-unit basis, have a reasonable going-in cap rate, and even produce a respectable projected return. Yet the investment can still be fundamentally unattractive if the assumptions required to make the numbers w

Refinancing has become an increasingly important part of the multifamily investment strategy. Buy a property below its potential, renovate the units, increase rents, improve NOI and refinance once the building has been stabilized. The investor gets some or all of the original equity back while continuing to own an improved asset. On paper, it is an elegant model. The problem is that the refinance is often treated as though it were a mathematical consequence of creating value.