Find Investing Success By Asking The Right Questions
We hosted a Meetup event the other night, and I found myself engaged in conversation with a nice guy about new construction. He was well equipped with a ton of questions about building costs per square foot, how to find out about utilities, how to know what you can build, who does my feasibility studies (I do for now... ), how long does it take to build, how do you estimate costs, what are the profit margins and so on.
Then he asked me one question that really stuck with me. He asked "how did you come to learn about all of this, and what can I do to learn?"
My response was: "you're already learning because you know the right questions to ask." Once you know what questions to ask, you can figure out just about anything. The follow up to that is asking the question to the right person, but most important is asking the question in the first place.
So today I found myself doing an analysis on an off market 14 unit apartment complex outside of Knoxville, TN. I found myself quickly jotting down notes and my husband asked what I was doing. I told him that I was writing down things that I needed to know about the property, or questions I needed to ask.
Then it dawned on me... so much of investing in real estate is about asking questions on things you do not know, and getting answers from the right people.
I've actually been using this question asking technique for years. I even have spreadsheets on questions to ask for certain topics. At times I've been told by people that they feel like they are being interrogated by me (oops!) so I've had to learn to space my questions better.
So, if we know that asking the right questions to the right people may be one of the keys to real estate investing success, how does one go about knowing which questions to ask? I think the best way to go about it is in asking yourself, what do I need to know, and then asking someone who has knowledge in that area what other things you need to know.
To jump start this topic, I want to share with you the most common questions I ask myself when evaluating a property (organized by topic). Some questions need answers before you make an offer, others during the feasibility stage, and others can be figured out later.
Income related questions:
- What are the current rents? Are the tenants on month to month or longer term leases? Do I want to keep the existing tenants or have them vacate?
- What would be the highest rent I could get today? To get the highest rest, what repairs would need to be done? How much would those repairs cost? Who can I get to do those repairs? How long should I anticipate those repairs will take and my property will be vacant for? What is my break even point on those repairs? What would the value of this property be after repairs and rent increases?
- What other income streams can I create for this property?
Expense related questions:
- What expenses do I need to plan for? What are the monthly utility bills? Can I pass any of those expenses on to the tenants? Is the property connected to sewer and public water? Who can do a sewer scope inspection? Is gas available? If not, do I want to spend the time researching that?
- What is the vacancy rate in this area?
- How old are the appliances, hot water heaters and furnaces? If they're older than 10 years should I replace them now or wait until they break?
- What repairs need to be done to this property right away and what repairs do I need to plan for in the next 3-5 years
- Who is going to handle the property management?
- What are the property management fees for leasing and for managing? Do they charge a percentage for handling repairs?
- Do I want annual inspections?
- What vacancy rate should I expect?
- What financing options are available? Which lender can do a loan on this property based on its condition?
- What are the current interest rates? Does it make sense to pay points and buy down the interest rate?
- How much do I need to put down on this property?
Exit strategy questions:
- What are my exit strategy options?
- What is the current zoning, and might it make sense to fully depreciate the building and then build something new?
Want to know my questions for new construction?
Each project is different and these questions only scratch the surface, but they will give you a great start.
Where are the utilities?
- Is the sewer stubbed to the property or in the street? Which sewer district would I be working with?
- If it is stubbed, what is the connection fee?
- If it is in the street, will the sewer district allow me to tap the main or go back to the nearest manhole?
- How deep is the sewer?
2. Who is the water district?
- What are the water connection fees? What is the water meter fee? What size water meter doI need?
- If I'm building multiple units, do I want to have multiple units on one shared meter or pay for multiple meters and have the units separate?
- Which side of the street is the water main in?
What does the current zoning allow me to do?
- Based on that, what type of building could I fit on the property?
- Based on the number of units, how many parking spaces do I need to plan for?
Are frontage improvements required?
- What do I need to do for access?
- Will a turn around be required?
What are all of the permitting fees?
- Traffic impact fees
- School mitigation fees
- Park impact fees
- Plan submittal fees
Are there any critical areas on the property?
- If so, which company can provide a wetland report?
- Is a geotechnical engineer required?
Is a survey required or does the seller have a recent one to share?
What are the options for drainage?
- What does the civil engineer need to create a drainage plan?
What are my financing options?
- Should I build this all cash and get a loan later or apply for a construction loan?
What is this all going to cost?
- Site development costs to get the land permit ready
- Building costs
- Financing costs
How long will this take?
I hope this posts helps you in your investing journey! If you have anything to add please feel free in the comments below!