Evaluating a portfolio deal. Out of state deal on 34 properties

4 Replies

I just came across an out of state deal for a portfolio of 34 properties. If there's someone that has experience with this please respond. 

They sent an overview of each property but what would be my first and second step into evaluating this information, then obtaining more info about each property. Basically validating each property and the information they've sent.

This is an out-of-state deal so opinions on how to go about this would be great. 

I included a screenshot of the financial break down they sent with the info package if that helps at all.

I don’t have experience with this type of deal but some of those numbers are probably way to low. Management should be 8 percent minimum, up to 10 or 12 percent. Vacancy is probably higher around 6 or 8 and maintenance should be higher as well.

Are you working with a P&L? If so, this should help guide your income/expenses. Your projected expenses seem light. What's age/quality of homes? What market? I'm finishing up a book on buying and selling portfolios and will offer my analysis tool on the website.

Other income - You can add other income from background checks, pet rent, pet deposits, etc etc.

Vacancy - What's average vacancy in state and local area? I'd add 2% to that number for bad debt.

Leasing fees and Management fee - Has your management company committed to 5%? Do they charge leasing fees?

Deferred maintenance - Is there deferred maintenance? Roofs, plumbing, electrical, paint, etc?

CapEx - I'd add $250/home.

Utilities - When properties go vacant, you're covering utilities. I'd assume $25/unit but this will vary on location.

HOA - Any HOA fees?

What's the spread between your net yield and cost of debt?

Your desired returns should help drive your offer price. Cap rates are more subjective, returns are more tangible. Best of luck!

you call this a blue sky performa.. you need actuals.. which I am sure will be quite different.

I would get copies of their latest tax statement on the properties. I would also want to know current condition, any deferred maintenance, any recent CapEx expenditures, copies of leases, etc. I would also view each property before going under contract or have an inspection clause with enough time to view each one. Typical for lots of sellers to fail to give accurate info and make deals appear better than they are.

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