“By failing to prepare, you are preparing to fail.” — Benjamin Franklin
If you’re interested in buying a multifamily property, preparation and due diligence are key aspects to the purchasing process. A very important question that you’ll want to ask yourself is “Of all the properties for sale, why this one?”
Hopefully analyzing the 40 questions below will help you purchase with additional confidence.
- Much of your financial return will be dependent on the price you originally buy the property at so proper due diligence is very important.
- There is a lot of data you can find online but there is invaluable information you only get from physically seeing the property and walking around the neighborhood.
Data you can find mostly online
- Is there job growth in the area?
- What kinds of businesses or retailers are moving there or have moved recently? (i.e. Starbucks, etc.)
- What was the MSA ranking in 2010 vs. 2019?
- What was the population in 2010 vs. 2019?
- Are any institutional real estate shops building or buying in the area now or in the near future? (leverage their research)
- How much supply of similar multifamily is coming online in the short and medium-term?
- What are the nearby colleges and universities?
- What are the enrollment numbers in these educational centers year-over-year?
- Are there any nearby hospitals?
- Are there any nearby military bases?
- Are there any other amenities in the immediate area that make it attractive?
- What is the cost of living?
- What is the average and median salary?
- What % of income is a renter paying towards rent? Lower % suggests more stable tenants.
- What is the median age?
- What are comparable properties renting for on a per square foot and per unit basis?
- What are comparable properties selling for on a per unit or per rentable square foot basis?
- Are rental prices in this area increasing on a per square foot basis year-over-year? Can you get monthly data?
- How has this area appreciated year-over-year? Is there still room to grow?
- How did the area relatively perform during the Great Recession?
- What is the absorption rate year-over-year? Can you get monthly data?
- Is the sub-market / neighborhood gentrifying? What has been written about it in the media?
- Is it in a flood zone or earthquake (seismic) zone?
- Is it within an opportunity zone?
- Are there weather issues historically? Any recent natural disasters?
- What is the crime rate in the area and has there been any crime at the property?
- Are there any tenant reviews online about the property?
Items much harder or impossible to find online
- Would you move and work there? Why?
- Why WOULDN’T you move and/or work there?
- What is your business plan and have you vetted it with other real estate professionals?
- Why is the seller selling?
- Did you find this deal off-market or has it been shopped around and you might be paying the highest dollar to win it?
- Are there any title issues or problems within the current selling ownership?
- Are there culturally specific values tied to the area that you will need to respect?
- Did you walk around the streets to this property and go inside some of the local spots that have been there for decades? What did the owners, staff, and patrons say about the area?
- Have you lived in the area or know anyone in this area with intimate market knowledge?
- Did you call the local police department? What did they say about the neighborhood?
- Regardless of if there are reviews online, can you talk to the current tenants?
- How will you finance this purchase?
- Is your exit strategy realistic?
Alright team, what did I miss? Hopefully this initial list gets you started on the right foot.
Best of luck out there my friends.
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