Every week I have deals sent to me by investors asking, “Is this a good deal?”

The question I always start with is:

“What Are Your Investment Goals?”

That’s what I do for my coaching clients. We begin with the end in mind. A lot of people are quick to jump to the deal. So let’s walk through my strategy for vetting deals and how you can use the same strategy to identify the ideal investments for you.

1. HOW MUCH Are You Going To Invest? Determine Your Investment Goals And Plan.

Before you begin to look at deals, you need to take a step back and determine what your investment strategy and timeline is. Questions that you need to ask yourself are:

• What are my goals? Are you looking to diversify your portfolio? Do you want to replace you active income with passive income?

• How much of my portfolio am I going to invest in real estate?

• Am I going to invest all at once or over time? I.e. Are you going to invest $1M over the next year or $100,000 each year for 10 years?

My personal strategy was to invest in 1 or 2 syndications a year so that my passive income achieved a “snowball” effect that allowed it to surpass my active income. Once you have answered the above and determined how much and when you are going to invest, you are ready to move on to the next step in the process.

2. WHERE Are You Going To Invest? Identify Your Target Markets

So you’ve decided how much of your portfolio you are going to put to work for you in multifamily investments. Where are you going to invest? I like to say, “You can’t move your apartment.” If you choose a poor market to invest in, you are stuck in that market. How do you determine what markets you should invest in? If you read my article “Where Should You Move?”  then you have a template for determining which markets are going to achieve outsized growth in the future. Are you going to invest in core or primary markets like San Fransisco, New York, Chicago? Secondary or suburban markets? What regions are going to experience outsized growth? Personally I moved to the Southeast for the demographic trends that the region was experiencing. This makes sense; people want to move to areas that have a better quality of life and a lower cost of living. Better weather, better life, less money? Sign me up! That’s why I like markets like Charlotte, NC, Atlanta, GA, Jacksonville, FL as well as markets in Texas. These markets should continue to outperform over the next 5 to 10 years.

Another component is whether you are going to invest in urban centers or the suburbs. Over the last 10 years, suburban properties have outperformed urban centers. The pandemic of 2020 accelerated this trend. People want more space and a more pleasant setting to live and recreate. I expect this trend to continue as well as both Millenials and Baby Boomers continue to favor these types of properties over properties in cities.

3. WHO Are You Going To Invest With? Choosing Your Operating Team

Once you’ve determined your strategy and markets you need to choose WHO you are going to invest with. This can make or break any deal. Your operating team should ideally be acquiring and operating properties in your target market(s). They should have a track record of success executing the strategy (value-add, development, etc.).

Make sure you interview your team.

• Why are they in this space?

• How many acquisitions have they made?

• How many successful exits have they had? How are their fees aligned with investors?

• Do they offer a Preferred Return?

Ideally, the team should have members that handle acquisitions, operations, investor relations, etc. I prefer to invest and work with teams because there are redundancies in place and one person isn’t usually the best at handling all of the aspects of a robust multi-family business.

Another important area is how the team sources its deals. Do they get “off-market” deal flow due to their relationships, or are they bidding against other buyers out there? What are their competitive advantages in each market?

4. WHAT Are You Going To Invest In? Deal-Level Due Diligence

Where most investors start is where we begin our 4th step: the deal itself! Only after you go through each of the steps above should you begin to look at individual deals. As you look at each deal, look for:

• Where is the property? Why do you want to invest in this market? How is the local income? Lots of empoyers nearby?

• How old is the property? Is it a value-add deal? New construction?

• Competitors: who is your competition? What are their rents? Amenities? How will you compete and win.

• Management; who is the property manager? Have they managed in this area? Do they specialize in this type of property? If it is value-add, do they understand how to manage construction teams?

• Current residents: Look at rent rolls. Anyone getting free rent? When do leases expire? What are current delinquencies?

• Inspections: Who is doing physical inspections of EVERY unit? Is there asbestos? What is the plumbing and wiring like? Are they up to code? Water? Are there leaks?

• Taxes: make sure that you understand the local tax laws. A big mistake here can cost you tens of thousands of dollars every year.

• Environmental reports

• Financials: Current expenses vs. Planned expenses. Your property management company should be an integral part of determining what is realistic.

Invest And Repeat!

Once you have gone through the process of determining how much, where, who and what you are going to invest in you can confidently make your investment and repeat the process. Consider diversifying into different properties and markets. You may even consider other investment classes after a period of time.

You can learn more about our strategy by getting a free copy of my book (get your free copy here).

In addition, I help my coaching clients put together a personalized investment strategy. You can learn more by emailing coach@nextlevelincome.com