Capital appreciation is one of the many things we enjoy as a multifamily syndication investor. What this means is that unlike single family homes, which are typically valued by comparable sales in the area during the last six months or so, these larger multifamily apartment complexes are valued by their net operating income. They’re valued like a business.
We can go in and look at the net operating income at take over and there might be multiple inefficiencies that we’re going to address; marketing inefficiencies, operational inefficiencies, many times there’s deferred maintenance that needs to be cured.
On the front end of evaluating a property, we can go in, we can look at all those things and see, “What is the opportunity here?” And sometimes the opportunity doesn’t necessarily look pretty. It might be an apartment complex that’s been run by an out-of-state owner for five years, and they just haven’t taken care of it. But that can represent an opportunity many times. Not always. A bad looking property doesn’t necessarily equal an opportunity, but through some very diligent underwriting and due diligence, both financial and physical, and we’re doing lease audits, we’re doing a bank statement audits from previous owners, things like that. And then we’re going on-site and actually doing a physical due diligence, where we’re having plumbers scope lines and do all these things. At any rate, lots that goes into the due diligence.
But the capital appreciation is a huge advantage for us because rather than relying the market to completely dictate the value of that asset the way that we do with a single family home, or just a house, we can go into proactively, force appreciation up, and we can have some impact on that net operating income number by doing some smart operational things and spending some money curing deferred maintenance.
If we can improve the net operating income into the property, we can force up the value of that property. It gives us more control over our destiny, and is a real … If you’re looking at the whole spectrum of real estate investing, capital appreciation is one of the great things that we love about multifamily syndication, and is a huge advantage for us.