One of the most important things in multifamily investing is knowing how to choose great properties. Our focus is class B and C properties so we can make improvements and increase the value and the returns. Here’s how we evaluate properties for our multifamily deals.
With all potential properties we look for ways to improve them, but first we take a look at the zoning reports to check out the possibilities. If it has a lot of land, can we convert some of that land? We want to see if we can add new units, or storage units. Maybe build a small park or add a cell tower. Each of these things increases the value of the property.
How much value is inherently in the property? We want to know before we decide to move forward or not. It gives us the starting point for value while we make improvements.
We want to be aware of any potential costly repairs for a property. The engineering report includes the structural integrity of the buildings and how sturdy the foundations are. If trees are too close to the property do they need to be removed to protect the foundation, or is a root barrier recommended? The report also includes any major plumbing issues. Sometimes we even use a scope to make sure there aren’t blockages in the main pipes.
We hire a contractor to make recommendations on possible updates to the property. He lets us know what can be fixed up, repaired or enhanced in the buildings and also an estimation of the costs.
In addition, there are several other smaller things we’ve learned to be aware of because of our experience in purchasing properties. For example we check the roofs. Are they flat or pitched? A flat roof tends to have more leaks. We check out the terrain to see if it’s level or slanted. If it’s slanted, we look for signs of flooding.
We spend time inspecting each unit on the property. We follow up with tenant surveys to find out what improvements they would need in order to increase rent. Sometimes all it takes is a low cost improvement, like mailbox repairs or a repaved tennis court, to add value and allow us to increase rent.
These are just some of the things we look for in evaluating a potential property to perform our due diligence.
If you’d like to find out more about some of multifamily investment deals, I’d love to hear from you.