Enter your email address for weekly access to top multifamily blogs!

Texas Multifamily Property Management Blog

A little bit of everything property owners need to know about investing in, hiring for, marketing, managing, and finding success with multifamily properties.

Due Diligence: What Every Investor Should Know Before Making an Offer

Due Diligence: What Every Investor Should Know Before Making an Offer

In 2008, this was a headline we read: “It is the Best Time in 30 Years to be Investing in Apartments.” Fast-forward 7 years and this headline just appeared in a June article on NJ.com: “Apartment Buildings Offer Strong Returns on Investments.” Why so little change? Because, while investment property ownership typically generates about 7 percent, multifamily has generated somewhere in the neighborhood of 10%-18% over the past 5 years (Source: NCREIF Property Index).

But, before you go jumping into what you expect will be the most profitable investment of your career, you must first understand that these are averages and, like everything else, a property can flop if your investigating skills aren’t as shrewd as your investing skills. What you need, at a very minimum, is a feasibility study, to include the following components: 

  1. The property's income and expense statements
  2. Area demographics and growth projections
  3. Comparable properties and suggested amenities
  4. Market analysis based on projections and comps
  5. Estimate of total cost of suggested improvements
  6. Timeline from purchase to projected solvency

Feasibility studies look different depending on who puts them together, but should be comprehensive and address the needs of prospective investors, renters and the local community. In addition, it's a good idea when looking at comps to put together a cost analysis per square foot to ensure you pay a fair price for a viable property. Comparing local rents will also help you see where rent should be increased or amenity value should be added to the property.

Remember the words of Confucius: “The expectations of life depend upon diligence; the mechanic that would perfect his work must first sharpen his tools.”

Rate this blog entry:

Leave your comments

The Freddie Mac Multifamily Midyear Outlook for 2014 contains some points that desperately want to be positive, paired with some estimates and forecasts that paint what could be a very different picture for the multifamily housing market. The take-away seems to be that we should expect volatile market conditions to continue into the next year or so, prime time for investors to do minimal capital improvements in preparation for eventual increased market demand. The report reveals that, by al...
One of the most important decisions you’ll make in relation to a multifamily property investment, other than deciding on which property to invest, is whether you will hire a property management team. So, why then would you make such a decision without having performed as much due diligence as possible? It’s important to understand that just because a property management company has been in business for a while or has a large portfolio of properties doesn’t mean it’s suited to meet the very uniq...
There is no doubt, leaking pipes at your apartment complex are a nuisance.  From residents to property managers to maintenance supervisors to owners, everyone is impacted when a property is leaking.  Oftentimes, the thought of selling the property to get rid of the headache seems appealing.  However, leaking plumbing is hard to hide, and chances are you will not be able to pass off the property without taking a valuation hit unless you get the pipes fixed. If you are thinking of ...