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.
Profitability Test
Market Research (Details will be posted soon)
Property Analysis
Profitability Study
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.
If the CoC doesn't work, stop wasting time on it
2. Market Research (Details will be posted soon)
Demand
Location + Market Boundary
Leading Industry + Major Employer
Population Growth
Household Structure
Household Income Trend
Supply
New Construction Pipeline
Sales/Rent Comps
3. Property Analysis
Financial/Operational
Rent
Occupancy Rate
Operating Expenses
Utilities
Maintenance
Property Management Fee
Property Tax After Purchase
Expected Capital Expenditure
Debt Assumption
Physical
General Conditions
Deferred Maintenance
Exterior Wall
Roof: Installed/Replaced Year
Sewer Line: Scope it
Heating System: Manufactured/Repaired Year
Legal
Zoning
Rent Control/Eviction Moratorium