A recent article on NREI (National Real Estate Investor) online discusses how affordable and workforce housing in secondary and tertiary markets present an attractive option for investors, as demand for affordable housing increases and renters look to suburbs and smaller cities for housing. We look at how BAM’s current-cycle strategy mirrors the information shared by NREI in today’s BAM blog…
According to the NREI article, thanks to the housing shortage, people looking for affordable and workforce housing are forced to look farther out than the main metro areas, which traditionally have much higher costs associated. As we’ve noted before, factors like the rising costs of residential construction, as well as rising mortgage costs are driving more people to rent. When it comes to multifamily construction, in most cities, the majority of new inventory both under construction and delivered is luxury assets – which does not alleviate the affordable housing need.
Despite the fact that many cities, including Indianapolis, are attempting to address the affordable housing shortage with new housing projects and multifamily projects in the works, the current shortage exists and extends beyond the metro into secondary and tertiary markets as people look for more affordable housing. As the NREI article notes, the demand is extreme and provides multifamily investors with an opportunity to benefit both residents by meeting their housing need, as well as to benefit financially from a good investment.
As we’ve written about in previous articles, and as BAM CEO and founder, Ivan Barratt, himself has mentioned, BAM is currently looking through an average of 200 deals to find that one good deal. In other words, it means kissing a lot of frogs before finding a “prince.” BAM has found good deals in these smaller markets; such as one asset in a city on the outskirts of Indianapolis, where many workforce residents live and drive into the city to work.
In the current cycle, BAM is not looking for heavy value add. Instead, we’re looking for newer, nicer properties: assets that are B+, A-/A and built 1990 or newer. Then it’s a matter of some light value-add and increasing value with management improvements. These assets also carry much less risk; BAM targets a 5-7 exit plan, but plans for a 7-10 year hold and that way avoids having to sell in a buyer’s market.
Want more info on multifamily investing? Go to investments.barrattassetmanagement.com and sign up for an account. Once there, under “offerings” you’ll find a free library with articles and videos featuring Ivan and his insider knowledge and insight, as well as a ton of info on BAM, its team, track record, and offerings.