8/21/2020 I received an email “Parkway Plaza 145 units Houston, TX”. The original price was $9.2M. Numbers looked decent at first pass. I get emails like this multiple times a week. I can’t underwrite every single deal. I don’t have the time. The majority of my time is spent managing property for our local owners. One of the keys to my success has been that I only invest in the Greater Houston Submarket. Therefore, I don’t have to constantly review markets. I’ve lived here for almost 30 years and know each submarket well.
To further filter deals quickly I use quick back of the napkin calculations as explained in a previous blog. The first thing I do is determine what the average rent is and compare that to the per door price. I did my quick math. $64K per door with average rents of $817. This is a ratio of 1.27%. In secondary and tertiary markets many investors look for 1.25% or better. To be just 8 miles from downtown Houston with this kind of ratio was amazing.
Collections and occupancy were both above 95% which is important during covid. Lenders are incredibly skittish on low vacancy and often require very large interest reserves. There was less than 1% of loss of income during Covid months. It also signaled that the office staff could likely be retained limiting any push back.
At this point, I began to get excited. I also knew I could probably get the price down at least a couple hundred thousand. If you are close to a rounded off million then you can usually drop the price down to that number without much push back from the seller. $9M for a 145 unit apartment complex just 8 miles from downtown Houston. Now we were really talking.
This deal was twice the size of my last purchase, but I couldn’t pass it up if the price was right. I’ve been looking at Houston apartments now since 2015. I have managed to do well with product built between 1950-1980 within an hour and a half of downtown Houston. Which is why I emphasize to other investors and passive investors to find someone who focuses on one or maybe two markets, ideally living in one of the markets. Expertise and experience in a city matters.
I began looking at comps in the Northline Submarket and the deal looked even better. I called a good friend at Berkadia to verify. His response was, “If you can get this below $9.7M then you are going to do well.” Now we were really in business. I needed to see this deal immediately. I tell people that real estate is a lot like bbq. It’s either low and slow or it’s hot and fast. If you drag your feet on hot deals you miss them and if you rush on slow deals you get it at the wrong price. This deal was smoking hot.
To Be Continued...