INVESTMENT STRATEGY
INVESTMENT STRATEGY
Acquisition Criteria
The following criteria is 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: 20+ units in the $1MM – $50MM range
- 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
HOW WE CHARACTERIZE EMERGING MARKETS
- People moving in, rather than leaving the area
- Jobs being created and moving in rather than lost
- Rents and property values rising
- Local government dedicated to attracting jobs
- Markets starting to absorb oversupply
Through extensive research, we analyze many indicators to identify emerging markets 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
- And many more factors
Emerging Markets
HOW WE CHARACTERIZE EMERGING MARKETS
- People moving in, rather than leaving the area
- Jobs being created and moving in rather than lost
- Rents and property values rising
- Local government dedicated to attracting jobs
- Markets starting to absorb oversupply
Through extensive research, we analyze many indicators to identify emerging markets 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
- And many more factors
Acquisition Practices
H.E.R.O Investment Group, LLC 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, magnitude of renovations, expected hold period and investor objectives. Each asset is typically held for 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 cashflow in different areas. These are called “Value Plays” or “Value Adding Components”.
VALUE PLAYS WE CAPITALIZE ON
- Mismanagement cause 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 H.E.R.O Investment Group:
- 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
01
We raise capital to buy tangible assets
02
We purchase income producing multifamily real estate
03
We send our investors quarterly distributions
04
We create forced appreciation through "value-add plays"
01
02
03
04
We raise capital to buy tangible assets
We purchase income producing multifamily real estate
We send our investors quarterly distributions
We create forced appreciation through "value-add plays"
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 cashflow in different areas. These are called “Value Plays” or “Value Adding Components”.
VALUE PLAYS WE CAPITALIZE ON
- Mismanagement cause 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 H.E.R.O Investment Group:
- 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
- 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.
See for yourself why Investors love working with us!
See for yourself why Investors love working with us!
We maximize investor returns by increasing net operating income throughout the holding period through a hands-on management style of heavy renovation and aggressive lease-up.
INFORMATION LINKS