Our Investment Philosophy at JP Acquisitions

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In the world of multifamily syndications, operators (i.e., general partners) need to stay level-headed and focused on a single investment philosophy. An investment philosophy is guided by a set of principles and goals which act as parameters when making a decision on whether or not to pursue a deal/project or not. In other words, an investment philosophy is a plan that guides investment decisions. It is a set of principles and rules that a syndicator uses to select investments and manage their portfolio.

In this post, we will outline the investment philosophy and principles that we stand by at JP Acquisitions. Our approach has been formed through countless hours of strategizing with the resources to which we have access. These resources include the availability of capital, deal flow, and other resources. By no means has our investment approach been static (i.e., not changing). Through our experiences, we’ve adapted our business and philosophy to incorporate what we’ve learned by managing properties, talking to investors, and asking ourselves what we want the future of JP Acquisitions to look like. This being said, this post will cover the return targets that we seek, the strategy that we’ve cultivated, and how our return targets line up with our strategy.

Return Targets

There are two primary metrics by which returns are measured in the multifamily syndication space; internal rate of return (IRR) and Cash-on-cash return (CoC). As a note, if you don’t understand those terms, a definition can be found in our glossary. The following are the return metrics that we underwrite to and use to measure whether we should pursue a deal or not:

IRR: 13%+
Average CoC: 7%+

If after underwriting a deal we find that the IRR and CoC are lower than our targets, we will typically not bother to look any deeper. It’s worth noting that it is possible to have a high IRR and a low average CoC depending on the deal time (e.g., a heavy turnaround/rehab property). In such a case, we’ll seek to understand the risk/reward profile and discuss it internally.

Not much more is necessary to be said on the topic of return targets because they mean nothing without being partnered with a strategy. To a large degree, a syndicator’s targeted return metrics are colored by their strategy. While I would say that vice versa is often the case, a syndicator’s surroundings and resources will limit what and where they can purchase which will in turn guide their strategy and ultimately their investment targets. In other words, the following steps are how most syndicators/investors come up with their investment targets:

Understand the limitations of one’s resources and market
Create a strategy that can optimize their resources
Identify the best target returns given their knowledge of what was identified in steps 1 and 2

I’ll note that there is an argument to be made for those who say most syndicators in the multifamily acquisition space tend to have the same return metrics, but I digress.

Strategy

At JP Acquisitions we’ve niched into a simple strategy through a combination of strategic planning and experience operating properties. To put it simply, we target cash flowing assets on Chicago’s west side which are currently being managed by tired landlords. With every asset we look to reposition the tenant base with the goal of having all subsidized tenants. We prefer to fill any vacancies with Section 8 tenants, however we have and currently are working with other subsidy types. Through the utilization of the Section 8 program, we receive reliable cash flow directly from the government at the beginning of the month. The government also pays for a tenant’s electricity and heating bills which in turn allows us to eliminate a portion of the utility expenses the previous landlord may have been paying on a tenant’s behalf. More so, the Section 8 tenant screening process is robust and has reliably allowed us source quality tenants.

Over time we’ve gained confidence in our strategy and continue to surpass our underwritten operations by significant margins. We rarely factor strong cap rate decompression in the area with which we operate in to stay conservative. That being said, we are aware of several market factors and developments which have a high likelihood of increasing the value of the properties we own and operate.

Conclusion

At JP Acquisitions we believe in fairness and stick firm to our investment principles. Logic and a deep understanding of our investor’s needs are what guide our opinions. We believe that cash-flowing assets provide the strongest risk/return profiles and such a strategy as ours has proven to be effective in the rising interest rate environment we find ourselves in. Our efficient and tenant-focused property management team gives us an added layer of understanding and insight into not only our properties but also the market in which we operate. Our team at JP Acquisitons believes focus and seeking to be the best in our niche is what will lead to over-performing our projections.

If you have any questions regarding the terms and concepts in this post or previous ones, please reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain further. If you’re interested in investing with us at JP Acquisitions, you can contact us via email (contact@jpacq.com), LinkedIn, Instagram (jpacquisitions), or our investor portal to set up a meeting.

As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck!

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About the Author

Tedi Nati is the Managing Partner of JP Acquisitions. In his role he is responsible for broker outreach, establishing deal flow, underwriting, marketing, and assisting in the closing process. In addition to his role at JP Acquisitions, he is an Assistant Equity Underwriter at Cinnaire, a non-profit Community Development Financial Institution (CFDI). In his role at Cinnaire, he is responsible for assisting the underwriting team in evaluating and structuring real estate equity investments and assessing the risks and mitigants associated with such. Tedi earned his Bachelor of Science in Finance from DePaul University, where he graduated Summa Cum Laude. In his free time he enjoys reading, looking for multifamily deals, and working out.

Make sure to always do your own research before making any final decisions on buying/investing real estate, stocks, or other securities. I am not a CPA, attorney, insurance, or financial adviser and the information in this blog post shall not be construed as tax, legal, insurance, construction, engineering, health and safety, electrical or financial advice. If stocks or companies are mentioned, I sometimes have an ownership interest in them – DO NOT make buying or selling decisions based on my posts alone. If you need such advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. or financial adviser.