Why We Invest Equity in Residential and Multifamily Properties?
We focus our investments in multifamily and residential income producing properties, ensuring strong management to produce consistent double-digit monthly cash flow. We believe that apartments and residential homes provide consistency and stability even when the market is in a recession, especially when purchased at distressed or undervalued pricing. We focus on buying properties that we project we will be able to generate 12%+ annual cash-on-cash returns within 15 months of acquisition.
Nationally, rentership is on the rise, homeownership is on the decline; family formation is happening later in life, and those who do buy a home are doing so later in life.
Why Class B and C Multifamily?
We primarily focus on Class B and C multifamily properties. Class B and C refers to properties that are not “luxury” in quality. Typically, built prior to the early 2000’s, these properties do not have the amenities of newer communities and usually command much lower rents.
We focus on these assets for a number of reasons:
- Cash Flow. Typically Class B and C properties sell at significantly higher cap rates and better cash-on-cash returns than Class A properties.
- Supply and Demand. Class B or Class C products are not being built. Instead, there is currently a concentration of high-end, luxury apartments developments underway. In many markets, the average 1 bedroom rent is $1,500-$2,000 per month, while the average 1 bedroom rent in a Class B/C community ranges between $650 and $900 per month. In addition to little new inventory, there is a growing demand for affordable housing.
- Declining market protection. We believe that in a recession people will still need a place to live and that many people living in Class A communities will be forced to move to Class B or C communities, so we anticipate occupancy will remain strong in a recession.
How We Mitigate Risk
The demand for apartment communities is very high. Investors are often willing to pay low 5’s to low 6 cap rates for Class B and C communities. Bidding frenzies can make it easy to get caught up in “the market” and overpay – even for sophisticated institutional quality investors who are consistently being outbid by other investors. Our discipline ensures we never get attached to a deal. We also believe in a conservative investment approach to factors we control and even more conservative in the expectations we do not control such as interest rates; rent growth; etc. We believe that when we buy assets that generate strong double-digit cash flow, based on current market rents, we will be in the best position to weather market changes.
Strong In-House Management
DLP Property Managers provides DLP Capital with the significant advantage of having a top notch, an in-house management team whose interest are aligned with investors and the fund. DLP Property Management has been able to drastically beat industry benchmarks in terms of physical occupancy, effective occupancy, tenant retention and collected revenue.
Long-term, Non-recourse Debt
A key factor in real estate investments in the utilization of debt. DLP focuses on utilizing debt in a relatively conservative manner; typically with a maximum of leverage of 75% of costs at the time of purchase. As a whole, DLP’s real estate holdings have an LTV of about 55%. In addition, to utilize leverage conservatively, DLP focuses on locking in long-term debt with no recourse to investors. This allows cash flow and investor returns to have no direct effect from rising interest rates.