I own multifamily properties throughout the U.S, and made a rule early on to walk each and every property before I buy it. I am a syndicator, so I invest with investors and manage the deal after we close. I don’t only walk the property because it’s an essential part of my due diligence, but also because I invest my own money in every deal. When you’ve got “skin in the game”, your perspective and attention to detail when walking a property is enhanced. I did not make an exception for this even during COVID. In this article, I will walk you through my process, and talk about how I used to walk properties before COVID, and how that has changed during COVID.
What Makes a Good Potential Deal
While I live in Rhode Island, I don’t buy properties here. Instead, I like to purchase properties that are located in landlord-friendly states, including Texas, Georgia, Florida, and the Carolinas. I do this for the same reasons as when I lived in southern California; landlord-friendly states are advantageous to landlords when problems arise.
Landlord-friendly states tend to favor landlords in the eviction process, whereas tenant-friendly states do not. There are other factors in addition to evictions, including policies governing security deposits, small claims court dollar limits, landlord-tenant statutes, and more. Each state has their own laws and policies governing landlord and tenant issues, so it helps to determine whether the state you’re planning to invest in is landlord-friendly or not.
Of course, the deal doesn’t hinge on a state being landlord friendly. I’m looking for job growth in the market, rent growth, and population growth. Other important metrics include the number of new units coming on the market over the next several years, the overall vacancy rate, the average rent rate, and the average price per unit. That’s what makes a strong market.
When considering a property purchase, there are many steps involved before a final offer is submitted and accepted. After finding a viable deal, I submit an LOI, or Letter of Intent, expressing my interest in purchasing the property as well as submitting a preliminary bid. If the seller is interested, we’re invited to submit a “best and final offer,” which is an accurate representation of the amount we’re willing to pay. It’s all part of the acquisition process.
Walking the Property
There is about one week between the time I submit an LOI and the time we’re asked to submit a best and final offer. During this time, I walk the property with my team. My process of walking a property always includes five specific aspects that will help me determine whether to move forward with the deal. This requires a team effort including my property manager, the current property manager, the maintenance team, and the broker. We visit units, and if possible, we talk to tenants to get their impressions of the property. Here are the five things that I’m looking for:
Item #1: Assessing the Tenants
Prior to COVID, one of the first thing