Acquisition Criteria

The following criteria are used to identify undervalued multifamily properties for acquisition, value optimizations, management, and disposition.

MARKET SEGMENTS

  • Age: The 18-35-year-old market segment is 22% of the U.S. population

  • Income: Renters who earn $40,000 or more annually

  • Price: Where rent is 30% or less of the median income

  • Retiring Baby Boomers are scaling down and enjoying maintenance-free multifamily living

PROPERTY CRITERIA

  • Multifamily residential apartments

  • Pitched roof construction preferred

  • Occupancy above 80% with the exception of properties that require renovation, providing properties are well located and present value-add opportunities

TARGET VALUES

  • Size and Price: 100+ units  with purchase prices ranging from $15 million to $150 million.

  • Returns: 7-10% Cash on Cash, Minimum Debt Service Coverage Ratio of 1.25

  • Type: C- to B+ properties located in C- to A areas

  • Property Vintage: 1980 or newer

  • Location: Emerging market areas with indicators for strong near and long-term economic growth

Emerging Markets

Choosing the “right” multi-family apartment complex to acquire is a critical aspect of FORTY-One Capital’s investment strategy. We are diligent in our exploration and focus on opportunities in emerging markets, where jobs and local economies are expanding.

EMERGING MARKETS ARE CHARACTERIZED BY

  • People moving in, rather than leaving the area

  • Jobs being created and moving in rather than lost

  • Rents and property values rising

  • The local government is dedicated to attracting jobs

  • Markets starting to absorb the oversupply

There are many indicators and a lot of research that goes into identifying an emerging market in the US. We start out by performing thorough market research that includes the following areas:

  • Job Growth Report

  • Population Growth

  • Path of Progress Reports

  • Local Economic Reports & Trends

  • Chamber of Commerce Reports

Acquisition Practices

FORTY-One Capital takes pride in building relationships with local listing brokers to get their “pocket listings” and access to other Bank Owned Properties (REO). Our searches include soliciting owners directly instead of waiting for properties to come to market.

Each asset undergoes a thorough due diligence process to confirm the physical and legal status of the property and to confirm valuations to ensure achievable investment strategies. 

Early in the asset evaluation phase, the debt and equity financing strategy is developed based on a number of factors such as property type, the magnitude of renovations, expected hold period, and investor objectives. Each asset is typically held 5-10 years depending on its exact business plan.

INVESTMENT DISCIPLINE

Asset selection involves a systematic, routine evaluation to identify favorable demand characteristics, i.e., job and population growth, demographic shifts, supply absorption rates, and positive local legislation. 

Markets with supply constraints receive the most favorable underwriting. Markets with signs of oversupply such as surplus land, changes in zoning, and increases in building permits are avoided.

Value-Add Strategy

Think of it as a business rather than a building. The more income it generates, the more it is worth. When we purchase an apartment complex, we are looking for specific opportunities to increase the cash flow in different areas. These are called “Value Plays” or “Value Adding Components”.

VALUE PLAYS WE CAPITALIZE ON

  • Mismanagement caused by owner self-managing

  • Poor supervision of management companies

  • Deferred maintenance

  • High vacancies

  • Below market rents

Some examples of value-add plays we implement at FORTY-One Capital:

  • Improve curb appeal by improving landscaping, adding dog parks, carports, etc. Residents will pay more when a property is in better condition and has amenities.

  • Purchasing a property that is 10% or more under current market rents. This gives us the opportunity to increase rents and immediately increase the value of the property.

  • Implement a water and sewage bill-back system to charge the residents for actual usage. Most apartment owners pay for all the water. When we bill back the residents it helps offset expenses and increase the cash flow. Through this system, residents tend to become more frugal and will decrease overall operating expenses.

  • Improve unit interiors with new paint, appliances, countertops, and floors

  • Adding a coin laundry facility to the complex

  • Below market rents

Path of Progress Strategy

A Path of Progress is where the greatest amount of building and development is currently happening, or soon to be.

A PATH OF PROGRESS IS WHERE:

  • Properties rapidly shoot up in appreciation

  • The majority of new construction is going on

  • Families and individuals are moving into the area

Investing in the Path of Progress yields the greatest returns in a short period of time.

We’re not just growing portfolios. We’re building a legacy.

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Investing involves risk, including loss of principal. Past performance does not guarantee or indicate future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. While the data we use from third parties is believed to be reliable, we cannot ensure the accuracy or completeness of data provided by investors or other third parties. Neither Billionaires Capital Clvb nor any of its affiliates provide tax advice and do not represent in any manner that the outcomes described herein will result in any particular tax consequence. Offers to sell, or solicitations of offers to buy, any security can only be made through official offering documents that contain important information about investment objectives, risks, fees and expenses. Prospective investors should consult with a tax, legal and/or financial adviser before making any investment decision. For additional important risks, disclosures, and information, please visit https://www.fourtyonefund.com/disclosures/