For multifamily, should I analyze numbers first?

8 Replies

I've been looking at some multifamily (from 5 to 20 units) and practicing to analyze those deals with BP's calculator.

When I find a deal that fit my criteria, should I check for the real numbers from the seller first?  or should I do the inspection and appraisal first?

If you've have done some multifamily purchase, can you share what process did you take?  

Thanks.

I would ask for real numbers from the seller first, the appraisal and inspection could cost you lots of money, and you may not want to spend the money if the numbers aren't there. 

@Donny Widjaja always always always verify the current expenses first before pursuing a deal, and make sure to factor in any other outside costs. For example, we underwrite every deal we sell with Management Expenses, Repairs/Decorating Expenses, as well as a Reserve Expense. Also, make sure you get an up-to-date rent roll to verify rents, occupancy, etc. If the deal looks good at that point, then consider pursing things further.

@Troy Beebe what do you consider a reserve expense? Anything else do I need to know other than CapEx?

@Jim Oliphant I totally agree with you.  I don't want to spend any money before confirming those actual numbers from the seller.

@Donny Widjaja we usually budget somewhere between $200-$400 per unit in reserves, because, well, you just never know when you're going to need to take down a tree, replace a leaking roof, or service an old boiler. 

Hi @Donny Widjaja

There is a great how-to explanation on buying a multifamily property in a wonderful book by Ken McElroy The ABCs of Real Estate Investing. It is very easy to read and full of examples.

@Donny Widjaja , I buy 100 to 400 unit deals and would suggest before you spend any money on an appraisal and inspector is to get the actual financials so you can make an informed decision.

I have had some experiences where the seller doesn't want to provide items until the asset is UC. So you may need to adjust your LOI accordingly.

To re-enforce @Brian Adams comment, except in some unusual cases, you should NOT be spending any hard funds until the property is under contract and you are in the due diligence period. The one exception to this I can think of is Traveling to the site to see the property for yourself. If you have a team you trust at the location, I would even skip this until under contract.

Once under contract, then get all the hard data (e.g. Leases, Current Rent Roll, T12, etc.) as appropriate, go over it and verify everything in detail resolving any issues / questions. Only then do you start spending on inspections etc.

Good luck

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