As a real estate investor, it’s critical that you obtain as much information as possible before making a purchase decision. By establishing a set of screening questions, you can begin to develop your knowledge of the investment options available to you. In this latest post, our team explores how to pinpoint specific questions you might ask a prospective building seller.
What Is the Local Market?
Exploring the local market should be the first consideration when evaluating the potential of any new deal. Make sure you have a clear understanding of the population in the area, their current wages, and the projected wage growth. The median income for the area should be enough to cover potential rents and, in most cases, tenants should make four times the annual rental amount to qualify for tenancy.
What Is the Seller’s Motivation?
The person selling the property likely had a plan of their own at the outset of their investment. Therefore, it’s important you understand why they are selling the building and how these reasons might impact your potential return should you make the purchase. Does their story make sense? Are they a long-time owner looking to get out of the real estate market, or is there an issue with the property or location that is compelling them to sell?
What Is the Location?
The location of the building should be carefully considered when evaluating the value provided by the deal. How many cars pass by the building on a daily basis? Is the building in an area with low crime and high levels of education?
What Is the Condition of the Property?
When was the last time someone checked the property’s air conditioning and heating systems? Does the building have new windows and doors? Make sure you have all the information about the infrastructure of the building so you can avoid having to invest significant funds on upgrades in the short-term.
What Are the Expenses?
The expenses for the project should also be a leading factor when determining the project’s value. What is the annual growth rate applied to expenses, and how does this annual growth rate compare with the growth rate of income?
What Is the Debt Structure?
When deciding on a new property venture, the level of debt associated with the venture should be a well-considered element. Is the rate locked for the purchase? Are the debt assumptions within the deal based on tangible data or on educated guesswork? Oftentimes, the way an investment is presented within the prospectus is quite different from the outline for the deal when you analyze the hard figures alongside your accountant.
Working with a qualified investment professional will help provide a foundation for investing in multifamily properties. To learn more about screening questions that you should consider when reviewing local buildings, call our trusted team today.