Top 3 Things to Focus on When You Tour a Property
Updated: Apr 27, 2019
An essential part of buying a property is touring it. The timing of the tour depends on your proximity to the property and your internal process; I only tour properties after my Letter of Intent (LOI) was accepted and I moved to the best and final round.
Many sponsors tend to focus on the property’s units and exterior condition, and even though it's crucial to look at them when you tour a property, there are 3 key areas that sponsors often overlook, but can be a great source of information about the property. Here they are:
The Seller’s Property Manager
No property tour should be conducted without including the seller’s Property Manager. Property Managers have a wealth of information on the property itself, and while many investors tend to focus on talking with the broker, the Property Manager actually knows the property better than anyone else.
The key to a successful tour with the Property Manager is to engage them and make them an active part of the tour. Make them feel comfortable with you and encourage them to talk candidly about any problems or concerns that they might have. This is how you can gain some valuable information from them about your prospective purchase.
What type of questions should you ask? Remember, you have an audience with the person who has the most knowledge about the property you’re planning to purchase. Ask which amenities are most popular and why they’re important to prospective tenants. Here’s why: if you’re planning to invest money to improve the property, you’ll learn where to put those funds. Ask about ways they think you can cut expenses, because they have an intimate knowledge of the property’s balance sheet.
Ask what is missing in terms of amenities. What would he or she like to add, like reserved parking or in-unit washers and dryers? Finally, ask which amenities are not being used. This information is valuable because you can possibly reposition them. As an example, if the laundry facility isn’t being used, you could turn it into an Amazon locker facility.
Here’s an interesting angle: ask the Property Manager if you gave him or her $150,000, how would they spend that money? This is telling in terms of what the property needs or lacks, and it can be an eye-opener to prospective property buyers.
Tenants are the lifeblood of your investment, and hearing what they have to say about the property is invaluable. These people are representative of the ones you’re going to market to, and entice into moving to your property. If the property needs upgrades, repositioning or remodeling, the tenants are the ones who will give you the absolute truth.
It’s vital to examine each unit in order to determine how they can be improved things that can be added or revised in order to increase the rents. It’s also vital to talk to as many tenants as you can, because you’ll also learn how to detect the main property and issues that will require budgeting. If there’s an old roof, it’s obvious you’ll need to prepare to replace it, but you might gain insight from tenants that can target other areas that require upgrading as well.
When I walk a property, I start by examining the parking lot situation. If the lot is full and it’s 2:00 p.m., it might be that many tenants are unemployed, which can be a bad sign in terms of potential past dues on rents. I’m also looking at the shape of the cars in the parking lot; are cars old and broken down? That’s an indicator of how tenants will take care of the apartments, and also speaks to their income status or creditworthiness.
As best as I can, I also try to evaluate the demographics of the tenants living on the property. Are they middle class, young professionals, couples with young children? This will tell you who the potential renters are and the type of tenant that you want to target. If possible, I also talk to tenants and ask them about their experience living in the property, and what they are happy and unhappy about. There’s nothing better than receiving direct feedback from those who will pay for living on your property.
Finally, I like to feel comfortable with the tenants who will be living on the property I’m buying, and it’s really no different than an investor who buys a single family home and rents it out to someone. That investor wants a high-caliber tenant for peace-of-mind that their home will be well cared for.
I was touring a property recently and when I arrived , I witnessed several tenants in the parking lot, drinking beer at 3:00 in the afternoon, and others were walking aimlessly. I knew that this property was not one I would be investing in, because the tenants were not the type of demographic that I was interested in having as my tenants.
Focus # 3: The Area
Before you head back to your home base, take a ride around the area near your prospective investment. Don't focus only on the immediate area. Drive a few miles in each direction, because the adjacent area speaks volumes about the property you’re considering. For example, is the area filled with old retail, or are there new strip centers featuring many contemporary retailers?
What about the competition? Are there a multitude of multifamily properties in the area that are newer, or could draw tenants away from your property? If there are, you might be looking at spending a lot of money in order to compete with them.
Using your knowledge, ask yourself whether the it’s a good neighborhood, one that’s rough, or one that’s in the path of progress? The answer may tip you off as to whether or not the area presents a good investment. Finally, check to see if the property you’re considering is close to employment. If it is, you’ll have a constant stream of prospective tenants that will seek out apartments to rent.
There are three key areas to focus on when looking at properties: the seller’s property manager, the tenants and the extended area around the property you’re looking at. Walk the property, talk with the seller’s property manager and get a good sense of what’s working and what isn’t. Talk to the tenants and see what areas they’re happy with, or ones that are causing them concern or problems. Finally, check the area around the property to see if it’s an area that warrants investing your money in. If it’s a thriving, viable area that’s close to employment, you may have found a good investment.
About the Author
Ellie is the founder of Blue Lake Capital, a real estate company specializes is multifamily investing throughout the United States. She is also the host of a Unbelievable real Estate Stories, a podcast that brings the true stories behind the deals, from the most successful real estate investors around the globe. Ellie started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100,000,000. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations. She holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.