Everyone has their own process when a new deal comes across their desk.
Some investors immediately ask: • What’s the upside? • What's the NOI? • Why is the seller selling? • What are market rents? • What’s the financing going to look like? • What’s the exit strategy?
Curious from those actively investing in multifamily:
What’s the very first question you ask yourself before spending time underwriting a deal?
Interested to hear what helps experienced investors quickly separate opportunities worth pursuing from the ones that aren't.
The first thing I ask is whether the debt service works at current rates. Everything else is secondary. If the numbers don't pencil with today's financing, the upside story doesn't matter. I underwrite the debt first. If it clears that bar, then I dig into NOI, market rents, and exit.
@Dalton Mongold The first question I ask is: What is the median household income within a 1-mile radius of the property? That question is definitely different from questions I would've asked in previous years, but I think it's a pretty good way to distinguish whether I want to spend more time on a deal.
The first question I ask myself is, what is the time and effort it is going to take on this asset? If it becomes a red herring, is it an asset I am prepared to spend a significant amount of time on?
The first thing I ask is whether the debt service works at current rates. Everything else is secondary. If the numbers don't pencil with today's financing, the upside story doesn't matter. I underwrite the debt first. If it clears that bar, then I dig into NOI, market rents, and exit.
I come at this more from the advisor side than as an active multifamily investor, but the first question I would still ask is intent: what is this deal supposed to do?
I have seen buyers get interested in opportunities that look good at first, then realize later that the property did not really match what they needed from the purchase. The numbers still have to hold up, but they should be testing the intent, not replacing it.
If I cannot answer that first question clearly, I would be careful about spending too much time on the rest.
Dalton — for me it's: "Can I get this property to break-even within 90 days of close?"
Sounds simple but it forces underwriting discipline before I touch a spreadsheet. Break-even on small multifamily isn't just NOI math, it's:
Are current rents close enough to market that organic increases (not heroic ones) get me there?
Is the existing tenant base stable enough that I'm not solving a turnover problem on top of a value-add?
Does the property cash-flow at current rents and current expenses with my debt service — or am I betting on improvements I haven't executed yet?
If the answer is "yes, I break even in 90 days," the deal has margin of safety. Everything I do after that to push rents, cut expenses, or reposition the asset is upside — not "this is what saves me from a losing investment."
The deals that go sideways are almost always the ones where break-even depended on something I had to MAKE happen: pushing rents 25%, cutting maintenance 40%, achieving a stabilization the seller couldn't. Sometimes those work. But they aren't first-question deals — they're "after I've fallen in love with the deal, can I justify the lift" deals.
NOI, cap rate, financing all come AFTER the 90-day question. Those are how I confirm the deal works mechanically once I've already decided it works structurally.
What sort of holding period and value-add scale are you typically working at in OKC?
For me, it's usually: "What would have to go right for this deal to work?" If the returns depend on aggressive rent growth, a perfect refinance, or a flawless execution of the business plan, I get cautious pretty quickly.
We review numerous multifamily opportunities in our co-investing club, and the deals that tend to hold up best are those that remain viable even if a few things don't go according to plan.
What am I trying to get out of this, and does this deal do that?
Sounds soft until you watch what happens without it. Your goal drives your strategy. Your strategy drives your market. Your market drives which properties even belong on your desk.
Reverse that order and you end up analyzing a property that was never going to serve you, and it can look great the whole way through.
So the exit goes at the top of the deal sheet before a single number goes anywhere. Cash flow, appreciation, forced equity for a refinance, quick turn. Those are four different sports and they don't share criteria.
Once the exit is named, the fast screen is: what has to be true for this to work?
If the answer is current rents, current expenses, and today's rate, the deal is real right now.
If the answer involves pushing rents 25 percent, cutting maintenance in half, or a refinance at a rate nobody can promise me, that's a deal with a story attached. Stories can work out. I'd rather know I'm buying one.
Then two things I check early, because both can kill a property faster than the analysis will.
Insurance. Get a real quote before you get attached. On older stock the carrier is looking at roof age, panel brand, plumbing material, and prior claims, and any of those can move the premium hard enough to change the answer. Some will decline the property entirely. That's a free phone call that ends a lot of conversations.
Property taxes. Most jurisdictions reassess on sale. A seller who's owned since 2004 is paying on a 2004 basis, and you inherit a number based on what you just paid. That reassessment lands right in the middle of your NOI.
And the question I'd add to your list, because it's saved me the most time.
Is the income real?
Occupied does not mean paying. A twelve unit can be fully occupied on paper while a few of those tenants haven't paid in months and the seller has been carrying them quietly, because a full building sells better than an empty one.
Physical occupancy is bodies. Economic occupancy is dollars that actually hit the bank. Those two numbers can sit far apart on the same rent roll, and only one of them is what you're buying.
That's why the paperwork comes before the inspection. Actual leases rather than a summary page. Twelve months of payment history per unit. Bank deposits backing that history up, since a ledger is a document somebody typed. Signed estoppels from every tenant confirming rent, deposit, term, and any side agreements, because estoppels are where you learn the seller promised somebody two months free for painting the hallway.
All of it is free and it kills more deals than the inspection ever will.
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