What to look for in a Multi Family Deal

At the time i am writing this article, i am in the process of acquiring my first property in the US. I am looking for a 160 unit multi family in Kansas as a value add. C to B Type. Mismanaged properties. Long term value add, as a cash flow play. 

How can you tell the difference between a lot of properties?

Every deal has to have numbers that make sense. Ok, but how do you assess that?

How can you tell if your deal on street A is a better opportunity that the deal on street B?

This is the most important question.

You have to build your criteria. And your criteria comes down to 3 questions:

1/Can you get a conservative 15% internal rate of return from this property?

2/Is this possible for at least 10 years?

3/Can you net at least $100 from each property after taxes?

Now that you have your criteria, you have to assess it the deal fits in that criteria

Use the BiggerPockets calculator to analyze your deals. You will reach the conclusion that the price you pay means pretty much everything, because if you overpay, you won't get the returns you are looking after. 

These deals are everywhere but they are not advertised everywhere. You have to look for them.

The Economy is a Supply and Demand relationship. Someone has a problem you present the solution. So essentially, in order to get a good candidate the following must be in place:

1/Mismanaged Operations

If the operations are mismanaged this is a no-brainer because the existing operator is doing a bad job. Signs to look for:

a) Rents are not being collected in a timely manner

b) More services like laundry and amenities are not being charged to the tennent and could be

c) Property is showing signs of wear and tear.

d) The books are a mess. The operator doesn't know the numbers on the property. They aren't showing that they can numbers in the income statements, cash flow statements and balance sheet. 

2/Motivated Seller

If the owners want to leave this is a huge red flag and you have to be careful, because when someone is desperate to leave they just want to cash out and leave you with all the crap to handle. So they key here is: study the numbers and figure out where it hurts. Where is the pimple? Because as soon as you find out where is the problem you can use that to your advantage and do a great deal. 

Conclusion

A deal is a deal, and emotions don't play a part here. Either the numbers work or they don't and you have to be in a position to be able to walk away if the deal doesn't respect your criteria to the fullest, because in the end it is all about protecting your investors.

Let me know your thoughts.