When it comes to investing in multifamily properties, knowing what you’re getting yourself into is crucial to getting a good return on investment. Finding potential problems and opportunities (opportunistic real estate) with a prospective acquisition is key to helping you come up with an appropriate offer. That’s why spending the time on property tours before you make an offer is so important. We underwrite dozens of real estate potential property investments a month. While we don’t tour every potential property that we underwrite, we do physically visit every single property that we intend to put offers in on. In this month’s Harbor Drive Investor we thought it would be fun (and informative) to show you a recent market visit to the Midwest that was a whirlwind of property visits…7 properties in 48 hours! We took some extra time out to show our current investing partners and other prospective investors interested in diversification (outside the stock market) some of the many considerations and efforts that go into evaluating a potential real estate investment.
The Property Tour
In this first video below, Rob talks about the property tour process. In most cases, the listing broker, or your buyer’s broker, will conduct property tours. We start by scouting the neighborhood This is usually done the day before or a couple of hours before the property tour starts. We look at the types of cars in the parking lot and the parking lot for signs of disrepair. We look for any exterior wall or sidewalk cracks or signs of a shifting foundation. We check and see if the stair steps and railings are safe to use and if the property is meeting the accessibility standards and requirements. We look at the signage and the traffic flow. When you look at this many properties they tend to all blend together so taking a lot of pictures and making a lot of notes before making an offer is also a good investment strategy.
As an investor engaged in a real estate property tour, your job is to spot potential problem areas with each property and to identify and recognize opportunities. It is especially important for new investors to get out in the market and tour as many properties as possible. This is how you can build a baseline of properties for comparison purposes. For example, you’ll gain a good understanding of typical amenities in the area, the average market rents and the average operating expenses for a specific submarket. Excellent knowledge that you can only get with “boots on the ground” visits.
The Inside and Out
As much time as we spend analyzing the outside, we double that when we spend time touring the interior. The building could look fine on the outside, but the inside may need work and/or might present opportunities. We make sure and see an example of each unit type offered (studio/efficiency, 1, 2, 3 bed). Inside a unit, we look for signs of wear and tear. We pay particular attention to cracks and stains on ceilings (we always look up!). We check the windows and doors for fit and wear, warp in the floors – or any signs of plumbing, drainage or leaks. Plumbing can be one of the biggest expenses to solve if there are past or current issues. We like to see if the aesthetics like counters, flooring, fixtures, and hardware need to be updated. We keep a look out for any other issues. We check out the boiler rooms and maintenance rooms looking for dated inspection notices, rust, disrepair, or safety hazards such as poorly stored flammable materials. Do systems meet life safety requirements? Is there proper lighting, egress, and signage? The list goes on and on but all of it is equally important and should not be missed.
In Part 2 of our 7 Properties in 48 Hours, Rob takes a moment after each property visit to talk about what he’s just seen, or, in other cases what is missing.
What are the Benefits of Pre-Offer Property Tours?
· Determine Seller’s Motivation and their Offering’s Accuracy – Seeing a property for yourself can help you create a clearer picture of the seller’s true intentions or reasons for selling the property.
· Opportunity to Observe Tenant Base – Will you need to reposition residents? Is it possible to find residents that meet your personal screening criteria in that market?
· Helps Guide Negotiations – Checking the condition and state of a property can help you come up with your fair price during investing negotiations.
· Deferred Maintenance Discovery – You’ll be better informed about the potential costs of maintenance work that has been postponed or addressed by the seller. Both are critical to your plan for purchase.
· Determine Capital Improvement Plan – Shows you a more accurate long-term plan to update units, fixtures and systems such as fire control systems, alarm systems, HVAC equipment, etc.
· Assess Repurpose Opportunities – Can you add additional amenities and/or update the property to offer additional market sizzle to attract more and better residents?
· Assess Market and Comparisons – Learn about the market where you are looking to invest. Find out what the average rents and amenities are in your comparables to gain a competitive advantage in the market.
These are some of the many benefits to getting your “boots on the ground” and seeing a property in person for yourself. In this final episode of our tour, we visit the last property on our 48 hour, 7 property tour. We head back to San Diego and will dive back into the numbers and revisit everything we observed on the properties.