How To Evaluate A Multifamily Passive Investment Deal In 10 Easy Steps

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Investing as a passive investor in a multifamily deal can be a lucrative way to diversify your investment portfolio, generate passive income and build long-term wealth. However, evaluating a passive multifamily deal can be a daunting task, especially for those who are new to real estate investing.

Therefore, this week, we thought we’d give you an outline of 10 easy steps on how to go about evaluating a possible multifamily transaction.

What are the key 10 steps to look at when evaluating a multifamily passive deal?

Review the deal summary

The first step in evaluating a passive multifamily deal is to review the summary of the transaction. This deal summary should provide a brief overview of the property, including its location, number of units, occupancy rate and purchase price. This basic information can help you determine if the deal is worth further consideration.

Review the basic financials

Next, it’s important to review the basic financials of the deal. This includes the projected income, expenses and cash flow. The cap rate, the rate of return on the property based on its net operating income (NOI) and purchase price, should also be examined. A higher cap rate generally indicates a better investment opportunity.

Evaluate the market

The state of the current property market is a critical factor to consider when evaluating a passive multifamily deal. The local market should be critically examined to determine if it is growing, stable or declining. Look for indicators such as population growth, job growth, and the demand for rental properties.

Condition of the property

The condition of the property is also an important consideration. Any property inspection report should be reviewed and an assessment made about any repairs or renovations that may be needed. This can help determine if the property is worth the investment and if there are any potential issues that may need to be addressed.

Consider the sponsor track record

The sponsor is the company or individual who is offering the passive multifamily deal and research can be undertaken about the sponsor’s track record and reputation in the industry. Look for information about their previous investments, their experience and any potential conflicts of interest.

Evaluate the deal structure

The deal structure is the way in which the investment is structured, including the distribution of profits and the terms of the investment. All investment documents, including the operating agreement and subscription agreement, should be reviewed to understand the terms of the deal.

 Assess the risks

All investments come with risks and passive multifamily deals are no exception. All potential investors should assess the risks of the deal and determine if they are acceptable. Such risks may include market fluctuations, tenant turnover and unexpected repairs or maintenance costs.

Consider the exit strategy

It is important to have a clear exit strategy when investing in a passive multifamily deal. The sponsor’s plan for exiting the investment needs to be assessed and the potential returns considered. This can help you determine if the investment aligns with the long-term financial goals of investors.

Seek advice from professionals

For anyone new to real estate investing, it is important to seek advice from professionals. This may include advice from a real estate attorney, a financial adviser or a real estate agent. These professionals can provide valuable insight and help investors make informed decisions about the investment and its returns.

Make a decision

After evaluating all of these factors, it should be possible to make a decision about whether or not to invest in the passive multifamily deal. Once a decision has been made to invest, it’s time to review and sign the investment documents, provide the required funds and monitor the investment over time.

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CPI Capital, clearly undertakes far more comprehensive and detailed analysis of any multifamily real estate deal for our passive investors than that outlined above. However, given the volume of possible transactions which are presented to us, it’s necessary to have a quick, tried and tested set of steps which we can use to quickly discard any “non-starters”.

Therefore, initially, evaluating a passive multifamily deal can easily be done by following these 10 easy steps: review the deal summary, review the financials, evaluate the market, check the property condition, consider the sponsor’s track record, evaluate the deal structure, assess the risks and consider the exit strategy,

Then we can short list possibilities and move on to the more detailed deal analysis, one thing upon which CPI Capital prides itself on!

Yours sincerely,
August Biniaz
CIO, Co-Founder CPI Capital