Due Diligence Steps To Finding Multi-Family Investments, Part 2

As a recap from the previous blog, Part 1, the first 5 steps to investor due diligence while finding multi-family opportunities are

1. Start with the Mindset
2. Get Educated and Build the Team
3. Location, Location, Location
4. Property Condition Attributes
5. Deal Analyzer and Market Survey with Rent Comps. 

The next 5 steps are just as critical as the first to help active investors find the right multi-family investment opportunity.  For the passive investors reading this, I hope this gives more insight on what goes on before an opportunity is presented.  Passively investing in real estate can create generational wealth, if you find the right deal sponsor and know what to look for when investing in a deal.

Final steps below:

6. Walk the Property and Comparative Properties.

If you can walk the asset before you do an offer DO IT.  I always like to walk the properties after the items above are checking out, since time is valuable!  It is always good to walk the property, especially with the broker, as it allows you to learn the area and the property.  Walking the property and nearby comps, with the mindset of a renter, will allow you to develop your business plan in a way that maximizes the potential of the asset.  The comparative properties are your competition, so secret shop as if you are a RENTER.

7. Go back to the Deal Analyzer.

This will happen many times with multiple versions for each property.  Look at the potential built-in rent growth that is possible without doing any improvements.  This can be done by looking at the rent roll and comparing similar units and rents.  Next look at the market rent increase potential, based on your market study. The market study will tell you what you can charge, if you renovated units, upgraded exterior, etc.

8. Make the offer and stay disciplined.

Once you go through the above processes and are happy with the returns, MAKE AN OFFER!  Your offer may not be the winning price, but with each offer comes valuable experience and better connections.  Be careful not to overbid!  Staying disciplined in your price range that hits your returns criteria is critical, especially when competing with others.  Your discipline will prevent you from overpaying for an asset…avoid the winner’s curse.

9. Continue Learning, Building Relationships and Raising Capital.

When you are in-between underwriting opportunities, continue building relationships with experienced sponsors, brokers, and property managers as well as continue to grow your investor base.  This is a great time to  build relationships at conferences or find a local meetup/investment group in your city.  Passive investors want to learn more about the advantages of passively investing in multifamily, including: return on investment, risk resilience, leverage, tax advantages, market demand, appreciation and amortization.  Having these skills contributes to growing our investors generational wealth for their family!

10. Rinse and Repeat!

This process is ongoing. The more you put into the process, the higher the likelihood that you will buy an investment property. With each experience, you will learn something new, and your pencil will be sharper for the next round!  Remember your “why” and keep at it!

The next steps of due diligence after an executed contract are just as important to get an investment worth closing on!  Stay tuned for the next blog on post contract due diligence.

To learn more about passively investing real estate check out my E-Book on the 5 Must Knows in Investing Passively in Real Estate by clicking here.

Additional Resources:

Due Diligence Steps to Finding Multi-Family Investments, Part 1

Execute Strategy through Due Diligence and Construction with Jorge Abreu

Susan Geist – Tax Savvy Savings: The Tax Bucket Approach to Put Money Back in Your Pockets