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Due Diligence

I want to share my knowledge of how to underwrite a real estate deal—especially applying to multifamily acquisitions.

You might have a chance to get a flyer or offering memorandum from listing agents. Please don't get fooled by the seller's idea before doing homework.

There are four forces that drive property value: Economic, Social, Governmental, and Physical/Environmental

My method crosses over these forces and the analysis of the property itself.

  1. Profitability Test

  2. Market Research (Details will be posted soon)

  3. Property Analysis

  1. Profitability Study

  2. Make sure the deal makes sense. Run a simple model including current operation and assumed debt terms. Assume as conservative as possible, and make sure cash-on-cash (CoC) stays positive.

  3. If the CoC doesn't work, stop wasting time on it

2. Market Research (Details will be posted soon)

  1. Demand

  2. Location + Market Boundary

  3. Leading Industry + Major Employer

  4. Population Growth

  5. Household Structure

  6. Household Income Trend

  7. Supply

  8. New Construction Pipeline

  9. Sales/Rent Comps

3. Property Analysis

  1. Financial/Operational

  2. Rent

  3. Occupancy Rate

  4. Operating Expenses

  5. Utilities

  6. Maintenance

  7. Property Management Fee

  8. Property Tax After Purchase

  9. Expected Capital Expenditure

  10. Debt Assumption

  11. Physical

  12. General Conditions

  13. Deferred Maintenance

  14. Exterior Wall

  15. Roof: Installed/Replaced Year

  16. Sewer Line: Scope it

  17. Heating System: Manufactured/Repaired Year

  18. Legal

  19. Zoning

  20. Rent Control/Eviction Moratorium

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