• JPCapitalSolutions,LLC

Tips on How to Successfully Analyze a Multi Family Property Deal

Updated: Mar 23, 2019



Are you currently searching into buying a multifamily property? If so, do you know what offer you should be making for said property? Also, how do you know if you have finally found a brilliant deal not to be missed?

Well, the answer to those questions are easy. The key to successfully identify a good deal is through practicing thorough analysis on every single deal you come across. After all, practice makes perfect. So the more you train yourself at analyzing multifamily property deals, the better you get at doing it. This is good because you will certainly pick up a few skills along the way such as:


-Developing a baseline for analysis using properties in your sub market

-Become more fluent at using deal analysis spreadsheets

-Gaining a better understanding of what potential tenants of the area want and what the current market has to offer.


-Becoming more proficient in the art of pro forma assumptions


STAGE ONE: BUILD YOUR CURIOUSITY


Before you really knuckle down and open your multifamily property deal analysis spreadsheets, quickly jot down any questions or comments about the property that comes to mind while you read the offering memorandum. It doesn’t matter how big of small they are. This is why it is good to build raport with a trusted Advislor that you can ask these questions to or to ask the questions on your behalf. For example..


*Why does the property have such a high vacancy rate?


*Why is the owner choosing now to sell?


*Is there potential to raise rents?


*What do YOU feel the upside is on the property?



STAGE TWO: ANALYZE USING THE SELLER’S NUMBERS


Open your spreadsheets and begin by running a property analysis based on numbers that you have been giving in the Offering Memorandum. This is a good way to start because then you will be able to see how the broker/seller arrived at their asking price for the property. For the greater majority, you will have access to two sets of numbers: the current property income + expenses and the pro forma income + expenses.


Take what has been written with a pinch of salt because there are a great deal of OMs out there where the current numbers are seriously over exaggerated and when it comes to pro forma numbers, since they are initally based on assumptions, they are simply calculated guesswork.


STAGE THREE: ANALYZE VIA THE USE OF HISTORICAL OPERATING DATA


Also known as Annual Property Operating Data (APOD) these financials will include:


-Property Rent Roll

-Annual YTD Profit & Loss Statement


A property’s Historical Operating Data are produced by a Year to Date basis and you can have access to them by asking because these two documents are hardly ever given upfront. It is good to run a property analysis based on both the current and historical operating financials because then you will be able to see how the property actually fares today without any assumptions and over glorified pro forma figures.


From the analysis you will gain a wealth of knowledge, for example you will soon find out whether or not the asking price is realistic and exactly how motivated the seller is.



STAGE FOUR: ANALYZE FROM A PRO FORMA PERSPECTIVE


It is finally the part where you analyze the property as if you are already the owner of it. So how well will this property perform while it is under your care? For this analysis, you will need to begin by creating a spreadsheet that can include 12 months worth of categories for all projected income, expenses, capital expenditures and debt services.


While you are doing this analysis, be sure that you are using a realistic frame in mind. It is good to have a multifamily real estate investing mentor who can aid you when it comes to pro forma assumptions as it will help keep you grounded. To get the most accurate pro forma values, be sure that you do a little ‘shopping around’. For example, try call up local vendors such as trash removal companies and ask them about their services fees or talk to the local tax assessor to discover if there is going to be a change to property taxes etc.


Once you have completed the four stages, you should be able to come to a fair offer price because the moment you have finished thoroughly analyzing a Real estate deal, you are able to successfully eliminate any hasty guesswork and have numbers that are more sound so that you will be able to walk away scotch free or sign the paperwork and become the new owner of a brilliant deal.  


If you want to take a look at what we use to analyze deals, access live listings and deal flow go check out dealcheck!



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