Found a multifamily deal? Now what?
Follow these steps to ensure you make a confident offer.
✅ 1. Underwrite the deal - See if the deal even makes sense based on the returns your investors are expecting. Have your partners look at your underwriting and provide feedback. Be conservative.
✅ 2. Tour the property - If the underwriting meets your criteria, schedule a tour with the broker/seller. If you can, tour the property with a PM and/or GC. PMs know the market and can provide credible information about rent increases, value add strategies, and other things you may not even think about.
✅ 3. Request a pro forma from your PM - This is to confirm your assumptions in your underwriting. Does the PM agree with your rent increases? Do they think renovations will take longer than you are projecting?
✅ 4. Request a term sheet - Have your lender provide a term sheet for your deal. Every deal is different so you want to have something in writing that will show exactly how much proceeds the bank will be willing to lend.
✅ 5. Submit an LOI - Does the property still make sense after all of the previous steps? You can now submit an LOI and feel confident in your offer.
Would you add or delete any steps?
What else are you doing before you submit an LOI?
Justin, nailed the ideal steps. Sometimes can't tour given time constraints, but definitely will if making it to best and final. I'd also add submarket / comp analysis as part or right after the UW step. If you live there drive by comps or spend time studying them at the least.
Love the breakdown, I think you hit it right on the head with the major parts of the process.
@Justin G. When submitting your LOI, Do you put how long the offer is good for? And if so how many days do you give them to except?
Sorry I missed this one earlier, great post @Justin G. ! I'll also second what @Brian Pownall mentioned about about sub-market analysis. At this point it can be a quick/dirty from rent-o-meter or Costar if you're lucky enough. :) No need to visit comp properties just yet, but it's good to have some specific data to that zip code or niche.
@Brian Pownall Great points! Thanks for the feedback.