Grand River prefers to pass on a “perfect” property rather than pay over fair market, or where net operating income will not meet our objectives. Buying at too high a price immediately puts a strain on income and expense management. This tends to increase the difficulty of finding occupants ready to pay more than market rents, and could impact net proceeds, should it become necessary to sell.
Since the properties acquired will be occupied by someone other than ourselves, it is critical that the combination of location / size / price features is attractive to potential occupants. Owning a great property where it is a challenge to find responsible occupants is not a winning strategy.
Grand River targets having positive cash flow for all of its properties – this means that, after all expenses and mortgage payments have been made, there is cash remaining. It is only in this way that joint venture participants can participate in the income or return of capital, without the concern of contributing to a cash flow deficit.
While each property should be financially self-supporting, significant gains can be made through appreciation in value. Ideally, a property appreciation rate that exceeds inflation, will guarantee improved returns either because it will make it possible to withdraw equity from the property, or will result in a much better sale price upon disposition. Buying in the right location and the right price are key factors in achieving good appreciation.
For any number of reasons, there should always be a choice of exit strategies. One of these may be to sell a property and, to do so, the ability to easily turn over is critical. While selling price is important, demand is critical – this is one of the reasons that Grand River will generally not choose communities with less than 25,000 in population – the demand and turnover rate in smaller communities tends to be much lower, thereby putting pressure on the sale process both in terms of price and length of time on the market.