The Anatomy of an Acquisition.
Let's we explore the Anatomy of an Acquisition:
Sourcing Deals
Underwriting
Letter of Intent
Contract
Sourcing Deals.
Last week we celebrated our one-year anniversary of closing our 102-unit property! It was sourced off-market through cold-calling efforts, which is one of our deal pipelines. There are several ways we are currently sourcing deals. Some of these include:
etter writing campaigns: we send letters to select group of owners
Cold texting/calling owners of these communities.
Investors: relationships developed with other investors, looking to partner up.
Driving for dollars: driving neighborhoods and identifying potential assets
Brokers: off-market as well as on-market leads from relationships
Wholesalers: guys and gals that get leads on properties and look to pass them on to us to close them
Lenders: when a deal falls apart, we often get a "last look" from lenders whom we have relationships with to see if we can step in
Attorneys: sometimes an owner is in trouble and is looking for a quick sale
On average, we look at around 10 deals per week, all in the Southeast, which include Florida, Georgia, Mississippi, South Carolina and Alabama. All a short flight away!
Underwriting.
The next step in the acquisition process is the Underwriting. Remember, Underwriting is a fancy term for "financial analysis." As you know, I love numbers, I love metrics and I love analyzing deals. From the 10 deals that we see weekly, we scrub them against some high-level criteria to begin the elimination process. Once we zero-in on a deal that fits these, we scrutinize the financial reports and perform our financial analysis (underwriting) against our specific returns criteria and business objectives. If our maximum offer price is in the ballpark of the asking price, we move to the next level. Our non-negotiable criteria:
15% minimum Average Annualized Return (AAR)
7% minimum Annualized Cash on Cash (CoC)
13% minimum Internal Rate of Return (IRR)
Long term hold (not flippers)
Growing market/path of progress
On average, we underwrite 3-7 deals per week.
Letter of Intent.
The next step is to place an offer. This is done using a Letter of Intent offer sheet. With this, we give the Seller parameters around our offer. The first portion of the LOI spells out the offer price, our earnest money deposit and the financing terms. The rest of it places specifics around any contingencies we are asking for, what documents we require, clarifying any contract terms and such. Usually the Seller will counter the terms and/or the price. Sometimes we can get creative, like one of the properties we're negotiating now, we're accepting the Seller's asking price but asking for a $100k credit on the back-end. What this strategy is doing is essentially lowering our risk and providing the Seller his number. Once we agree on final terms and price, we are now softly under contract! I say softly because the next step is the formal contract. We submit 2-4 LOI's per month.
Contract.
The final step to the acquisition process to formally put the property under contract. This means that we are now under the clock to perform all of our agreed-to terms. This includes getting financing lined up, performing physical inspections, reviewing all financial reports (i.e. bank statements, contracts, income, expenses). If there are anomalies, we can renegotiate or cancel the contract. If everything checks out in a timely manner, we proceed to close! *After we're under contract, the Due Diligence process begins prior to closing. We'll discuss Due Diligence at another time.
Inflation hedge.
It's no secret the best hedge for inflation is putting your capital to work for you in a commercial real estate asset. You can get details from the blog I wrote back in May by clicking HERE.
The 3 main drivers are:
Debt. Our debt is locked in at today's low rate and doesn't change with inflation.
Rents. Inflation drives rent UP, which increases our income.
Asset class. Multifamily THRIVES during inflationary periods.
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We are Ten15 Capital, and we are innovating the world of real estate investing via apartment complexes. We create lucrative opportunities via syndication or joint venture projects.
To learn more, please go to our website: www.Ten15.co
