Help: Stage 2 Deal Analysis for Multi-Family Properties

2 Replies

First off, my apologies if I posted this in the wrong forum.

I'm just getting started in real estate investing, but plan to focus on small to medium sized multi-family properties.

I have been doing a lot of searching and benchmarking from websites like LoopNet and Zillow, etc. From the basic financials typically provided online, I can run a simple analysis and weed out properties based on current and projected cap rate, GRM, the 1% rule, the 50% rule, cash-on-cash return, etc.

For those with more experience, what is the most important information to get next and the most important questions to ask? I know there are numerous details that all contribute to making or breaking a property and I could probably write a list of hundreds of follow-up questions (rent rolls, recent major repairs / capital improvements, historical vacancy rates, maintenance records, etc) ... I'm hoping to get some help prioritizing what to ask during this "stage 2" of deal analysis.

What advice do you have for follow-up questions when reaching out to real estate agents, after your initial deal analysis and screening?

Thanks a lot!

Hey Matt, great question. I wish it were a simple answer, but I'd would say the biggest thing to look at is A) does it cashflow currently? And if the answer is no, then question B) why not?

Great real estate investors create deals where others cannot. Is there something about this property that could make it an awesome deal, but it maybe needs a bit of a spitshine? A high vacancy is not always a bad thing...you just need to understand WHY the vacancy is high. Maybe its a mom and pop owner and they bought the property for so cheap, they can get by on 30% vacancy and don't want to put in the effort to fill the property all the time. 

So I think A & B are the 2 most pertinent questions. Because at the end of the day, if it doesn't cashflow on day 1, and there is a reason that it won't cashflow, then it's not a good deal (in my humble opinion since I invest for cashflow). If you can answer those 2 questions, then proceed with the deal and go through the rest of your DD. Now, sometimes, the answer to A is 'no' and the answer to B is 'I don't know', you may need to continue with your DD and asking more questions. It may be buried somewhere, like in a utility bill that's still being paid by the owners. So sorry for the rant, but it's not as simple as it may seem on the surface. 

Best of luck!