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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:  The property's income and expense statements Area demographics and growth projections Comparable properties and suggested amenities Market analysis based on projections and comps Estimate of total cost of suggested improvements 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 ......
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