Our Investment Thesis

In addition to building a strong partnership team, having a clear vision of the assets we want to pursue is very important to us at Adventurous Real Estate Investors. Below, we share our current investment thesis so you know exactly what type of deals we seek to acquire.

We are always monitoring the economic climate and fine-tuning our investment thesis to reduce our investment risk. Therefore, our investment thesis is a living document and is continually reviewed and updated to ensure that we appropriately reduce risk.

Our investment thesis is comprised of three core areas:

  1. Returns

  2. Markets

  3. Property class

Let’s dive into each area a little bit deeper…

Returns

When initially underwriting a potential deal, there are three initial criteria that must be met in order for us to continue to pursue it. They are:

  1. Cash-flowing from Day 1 — we will never enter a deal that has negative cash flow.

  2. ~40%+ of returns have to come from cash flow — this ensures that we are not banking on appreciation and if we have to hold the property longer to time the market appropriately, we will have a solid cash-flowing asset that will make our investors happy.

  3. Stabilized asset — it must be at least 90% occupied for at least 90 days which allows us to obtain long-term, fixed-rate financing. This gives us the flexibility to hold the asset longer if needed, to time the market, and exit the property when it makes the most sense for our investors. This protects our investors’ capital which is critical during the current economic uncertainty.

Once a deal passes these specific criteria, we then ensure it meets the following minimum returns:

  • 5%+ Cash on Cash

  • 14%+ IRR

  • 80%+ Total Return

  • 3-7 Year Hold Period

Markets

We only seek opportunities in economically stable markets and sub-markets. Here are five data points we review when considering investing in a particular market.

  1. Positive population growth

  2. Positive income growth

  3. Positive house value growth (the data show that apartment values follow residential homes by about two years)

  4. Positive job growth

  5. Lower crime rates

If a city still looks promising after reviewing these data points, we will then dive a little deeper and look at the following additional data points.

  • Current occupancy rates

  • Annual occupancy increases

  • Net absorption

  • Units recently delivered or planned to be delivered

  • Annual effective rent growth

  • Projected rent growth in coming years

At this time, we are very bullish on specific submarkets in the Tulsa, Oklahoma MSA because not only do they meet our criteria, this city has lower investor competition, ultimately allowing us to provide higher yield returns for our investors. Check out this article I wrote about Tulsa, Oklahoma to learn about all the great things happening there.

Property Class

We target undervalued multifamily properties in order to increase operating income and decrease expenses by taking advantage of value-add opportunities.

We are currently targeting B- and C-class assets that are 1970s+ vintage. Here’s why:

  1. They are generally recession-resistant. If someone loses their home due to job loss, they are most likely going to move into a B- or C-class property (depending on what their living arrangements were previously). An A-class property will be too expensive for them to live and a D-class property will be too much of a drastic change for them. Additionally, if someone takes a pay cut from their job that lives in a B-class apartment community they will most likely move to a C-class community.

  2. B and C-class properties trade at higher cap rates which means higher cash flow for our investors

  3. Value-add business models can be applied across B- and C-class assets. A-class properties typically have rents that are already at the top of the market which makes it difficult to add value, increase rents, and therefore increase the return for our investors.

  4. D-class properties are too high risk for us given the amount of repositioning that would need to take place and they generally have higher crime rates and low to no cash flow during the first several years, which we avoid.