It seems that worries of the country being plunged into a recession has not put a damper on Miami-Dade County’s multi-family sector. It remains a bright spot in the CRE market, characterized by low vacancy rates (3.8% as Q2 wrapped up), an even lower supply, and increasing asking prices ($2,048 per unit on average). In the middle of this year, Miami-Dade’s rental market was even named the most competitive in the country, with investors spending $5 billion during the first half of 2022.
But the future is uncertain. For those of you who are in the middle of acquiring a multi-family property or are about to, these underwriting tips can help protect your investment in the event of an economic downturn.
Be cautious about rent growth assumptions
It’s good to look at current rent growth, but don’t pin estimates on today’s numbers. Instead, take a conservative approach and assume rent growth will slow down, if not remain stagnant, for the next year or so. Some will say you’re being pessimistic, but presuming that market conditions will take a turn for the worse in the near future increases the chances of your investment surviving a downturn.
Take a closer look at physical and economic occupancy rates
One of the better ways to understand how a particular multi-family property is operating is by taking a look at both the physical and economic occupancy rates. The former refers to the total number of units that are currently filled, while the latter compares how much the property is making versus the profit it should be making if all the units are occupied and rented at full market value.
An economic occupancy rate of less than 90% can indicate some issues with the multi-family property. These can be anything, from late paying tenants and above-market rental prices to mismanagement. How to turn things around is another discussion, but in terms of underwriting, make sure to assess both occupancy rates to gauge the property’s profitability.
Consult several lenders and banks
You may already have a preferred lender in mind, but during the underwriting stage, nurturing relationships with lenders, banks, and even CRE brokers can work to your advantage. They are vital sources of information, which will ultimately help you protect your investment.
What kind of information should you suss out? Firstly, the ideal financing structure for your commercial real estate investment in Miami. Would it be more beneficial for you to go for a shorter loan term or would it be better for you to shoulder long-term debt as you ride out the recession? Second, the nitty-gritty of financing. Don’t hesitate to ask the experts to break down terms you’re unfamiliar with. And instead of wondering about scenarios, let the lenders or banks answer your what-if questions as clearly as possible.
A CRE expert is an indispensable part of your team as you navigate the highs and lows of Miami, Florida‘s commercial real estate market. Jerad Graham and the rest of the EXP Commercial team are here to guide you. Get in touch at (305) 874-0835 or send an email.
