What’s the First Question You Ask Before Pursuing a Multifamily Deal?

Question

Everyone has their own process when a new deal comes across their desk.

Some investors immediately ask:• What’s the upside?• What’s the NOI?• Why is the seller selling?• What are market rents?• What’s the financing going to look like?• What’s the exit strategy?

Curious from those actively investing in multifamily:

What’s the very first question you ask yourself before spending time underwriting a deal?

Interested to hear what helps experienced investors quickly separate opportunities worth pursuing from the ones that aren't.

Pierre Guirguis · Answer

The first thing I ask is whether the debt service works at current rates. Everything else is secondary. If the numbers don't pencil with today's financing, the upside story doesn't matter. I underwrite the debt first. If it clears that bar, then I dig into NOI, market rents, and exit.

Russell Brazil · Answer

Whats the prevailing market cap rate in the area for the same class of property?

Burton Williford · Answer

Dalton — for me it's: "Can I get this property to break-even within 90 days of close?"

Sounds simple but it forces underwriting discipline before I touch a spreadsheet. Break-even on small multifamily isn't just NOI math, it's:

Are current rents close enough to market that organic increases (not heroic ones) get me there?

Is the existing tenant base stable enough that I'm not solving a turnover problem on top of a value-add?

Does the property cash-flow at current rents and current expenses with my debt service — or am I betting on improvements I haven't executed yet?

If the answer is "yes, I break even in 90 days," the deal has margin of safety. Everything I do after that to push rents, cut expenses, or reposition the asset is upside — not "this is what saves me from a losing investment."

The deals that go sideways are almost always the ones where break-even depended on something I had to MAKE happen: pushing rents 25%, cutting maintenance 40%, achieving a stabilization the seller couldn't. Sometimes those work. But they aren't first-question deals — they're "after I've fallen in love with the deal, can I justify the lift" deals.

NOI, cap rate, financing all come AFTER the 90-day question. Those are how I confirm the deal works mechanically once I've already decided it works structurally.

What sort of holding period and value-add scale are you typically working at in OKC?

Jamie Sweeney · Answer

I come at this more from the advisor side than as an active multifamily investor, but the first question I would still ask is intent: what is this deal supposed to do?

I have seen buyers get interested in opportunities that look good at first, then realize later that the property did not really match what they needed from the purchase. The numbers still have to hold up, but they should be testing the intent, not replacing it.

If I cannot answer that first question clearly, I would be careful about spending too much time on the rest.

Charles Seaman · Answer

@Dalton Mongold The first question I ask is: What is the median household income within a 1-mile radius of the property?  That question is definitely different from questions I would've asked in previous years, but I think it's a pretty good way to distinguish whether I want to spend more time on a deal.

Joel Miller · Answer

Very quickly I want to know what the rents are and whether they can be raised with or without improvements (forced appreciation) to the property.

G. Brian Davis · Answer

For me, it's usually: "What would have to go right for this deal to work?" If the returns depend on aggressive rent growth, a perfect refinance, or a flawless execution of the business plan, I get cautious pretty quickly.

We review numerous multifamily opportunities in our co-investing club, and the deals that tend to hold up best are those that remain viable even if a few things don't go according to plan.

What’s the First Question You Ask Before Pursuing a Multifamily Deal?

Most Popular Reply