What’s a Sign a Multifamily Deal Is Better Than It First Appears?

Question

A lot of multifamily deals look good at first glance, but the more I learn, the more I realize some of the best opportunities are the ones where the real value isn’t immediately obvious.

Curious from those with experience:

What’s something you see in a deal that makes you think:“there’s more upside here than most people realize”?

Could be:• operational inefficiencies• under-market rents• poor management• location trends• assumable financing• vacancy issues that can be fixed• expense reductions• something else

Would be interesting hearing what experienced investors pay attention to that newer investors often miss.

G. Brian Davis · Answer

One thing that always gets my attention is when the problem appears to be operational rather than structural.If a property is struggling because of poor management, high vacancy, below-market rents, or inefficient operations, there's often a path to improvement. Those are things an owner can potentially influence. What makes me nervous is when the only upside comes from hoping the market bails me out.

As a co-founder of a co-investing club, Many of the operators we like best are really good at identifying problems they can solve rather than betting on things they can't control.

Frank Pyle · Answer

A deal is usually better than it first appears when the problem is management related, not property related. I like seeing messy collections, stale rents, bad photos, weak leasing, or expenses that look lazy because those can often be fixed without betting on the market saving you. The quick check is to separate upside you control from upside you hope for, then see what NOI looks like if you only capture part of it. If rents are 150 under market but the units are already decent and turnover is normal, that is different than needing a full rehab and perfect lease up to get there. Hidden value is often boring, like billing back utilities, cleaning up payroll or management fees, tightening delinquency, and getting 50 to 75 percent of the rent gap instead of underwriting 100 percent.

What are the current rents, market rents, occupancy, and trailing 12 NOI on the type of deals you are looking at?

Send those and the price and I can give you a quick gut check on whether the upside is real or just a nice story.

Denise Supplee · Answer

Hi @Dalton Mongold, I pay attention when a property has fixable problems: rents that haven’t been brought up thoughtfully, expenses that are out of line, vacancy caused by poor management, or a good location with an asset that hasn’t been run well. But I also want the upside to be within the operator’s control. If the whole plan depends on lower rates, cap rates compressing, or a hot sales market, thats a problem. The deals I like best are the ones where the operator can create value through execution.

Timothy W Hanson · Answer

I'll add..• Curb appeal opportunities• Unit appeal opportunities • Utility bill recovery • Missing a website / Google page • Mom and pop sellers who might not have optimized their finances lately

What’s a Sign a Multifamily Deal Is Better Than It First Appears?

Most Popular Reply