9 KEY ELEMENTS OF A 10-MINUTE QUICK ANALYSIS OF A COMPLEX

As multifamily investors, we understand the need to move fast when checking out potential deals and making smart choices of properties on which to make an offer.

We have developed a quick, 10-minute approach to checking out offerings as they hit our desk.  This allows us to compute an offer, communicate it with the broker, have talking points for the conversation, and sharpen our skills.

Too many investors like us spend too long, sometimes hours, analyzing properties before making an offer.  This often means not communicating with the brokers for days. 

We find making offers quickly pays off.

4 REASONS TO BE ABLE TO DO QUICK UNDERWRITING.

SAVES OUR TIME.  You and I as real estate investors are busy people. Checking out every detail of a possible deal takes a lot of time. But if we can do a quick 10-minute review, we can look at lots of deals in a short amount of time. This helps us focus on the best deals and not waste time on ones that don’t work.

RESPOND TO BROKER QUICKLY.  Most of our potential deals in this multifamily space come from brokers.  They value a timely response from us.  Doing a quick analysis allows us to quickly get back to them to let them know if we are interested or not.

Many deals may not be the right fit for us.  We will let the brokers know this quickly, a way to both stay in touch and to help our brokers know the criteria that make sense to us.

FINDING GOOD DEALS.  As investors, we are relatively conservative.  We know investing requires taking risks, but we might have to look at scores of offerings before we find one that fits our investment criteria. 

When we can quickly check out a deal, we can look at more deals with the time we have.  If we find a deal that does make sense, we can jump on it quickly, before someone else does.  This gives us a better chance of getting a great property at a good price.

KEEPING OUR FINGER ON THE PULSE.  By consistently putting in some time looking at current offerngs, we keep up with what is happening in the market.  Things change in the real estate world all the time.  Being able to do a fast, 10-minute analysis helps us stay quick on our feet and keep a finger on the pulse of the market.

It helps us grasp opportunities when they present themselves.  Being able to do this quick check is a really important skill, saving us time, spotting good deals, and keeping up with a fast-moving market.

HERE ARE 5 KEY FACTORS TO CONSIDER IN A QUICK 10-MINUTE UNDERWRITING

LOCATION.  Our first teacher in this multifamily space, Anthony Chara, taught us to first look at the location of the property. This takes longer than 10-minutes and is done prior to looking a specific deals.

We have pre-identified a few markets that we think have the right elements for good investments in apartments.  For us, two factors are – a tax and investor-friendly state and an area with economic and population growth.

We have chosen a few states that meet these criteria.  Then we look at population centers within those states.  For us, we are comfortable with medium-sized cities.  Again we see if there are cities with projected economic and population growth.

We study those cities or markets, looking at existing apartment complexes, average rents, planned new construction of apartments in that area, good school districts, availability of transportation, lower crime areas, etc.  We use the knowledge of brokers and property managers along with information readily available on the Internet.

All of this is before we start looking at new offering memoranda.  We want to be “experts” in these areas or locations or markets.  This gives us the detailed information we need to be able to make a quick analysis.  For example:  rents, insurance and tax expenses, vacancy rates, etc.

We focus on locations with a strong market demand that have the potential for higher occupancy rates and increasing rental income and thus long-term property appreciation.

With a clear understanding of the particulars in this limited, focused set of markets we are ready to do our quick analysis as offers show up on our desk.

AN INSURANCE BROKER, BANKER, AND TAX INFORMATION

Before we do our quick analysis, we also build a strong relationship with an insurance broker and a banker.  Once again, this is not part of the 10-minute analysis. It is also done prior to reponding to specific offerings.

We ask the insurance broker what the likely insurance will be on a complex we might want to purchase.  For example a 30 unit or a 60 unit or 100 unit complex.

We ask the banker what the likely terms will be if we sought a loan on a complex we might purchase.  We use the same examples with likely purchase prices.

We also research the property tax information from the appraiser in the county.

This generic information will be plugged into our quick analysis spreadsheet.

We update this information regularly.

Now, when we see an offering we start the 10-minute clock, input the following information, and call the broker with our response. Often we say “No, thank you, because…”

FINANCIAL PERFORMANCE.  We gather the key financial metrics such as rental income, operating expenses, vacancy rates, and cash flow.  We secure this information from the offering memoranda provided by the broker and put it into our quick analysis spreadsheet.

Our spreadsheet has typical operating expenses, particularly the insurance and tax computations.

The historical performance, such as the most recent trailing 12-month set of financials can provide insight into the property’s revenue generating capabilities and operating efficiency.

PROPERTY CONDITION.  We do our best from the limited information we have and our 10-minute system to identify any significant capital expenses needed.  The age of the property and the materials with which it is constructed along with the condition of the roofs are important items we seek to understand. 

VALUE-ADD OPPORTUNITIES.  We are most interested in “value add” properties, which are often C-Class, with limited amenities and older construction dates.  Our goal is to improve the operations and improve the individual apartments and the complex as a whole so as to increase rents and thus the value of the property.

We make a quick guess as to the capital expenditures needed to improve the property and force the appreciation.  We might be wrong.  It probably will be, but it gives us talking points when we talk to the broker.

CONCLUSION. 

By focusing on these key elements during a quick underwriting process, we can efficiently evaluate apartment complexes for investment potential and make informed decisions that align with our investment goals and risk tolerance.

This rapid assessment may not capture all the nuances of a comprehensive underwriting analysis.  It does provide us with the ability to respond quickly, get back in touch with the broker, and help us uncover investment opportunities.

Of course, based on the conversation with the broker, on those properties in which we do have an interest, we can do deeper underwriting.

You might have an even better approach. If you do, let’s talk.

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