Acquisition Stress Testing

[Nate Marshall]

The credit for inspiring this post goes to Rod Khleif.

So often one of the more important tasks when acquiring a property or doing due diligence is the stress test. You want to close the deal. You want the property. It's going to be a key asset in your portfolio and building a legacy of generational wealth for your family.

But have you also looked for the cracks, the problems, the issues? Here are some thoughts:

• Do the numbers work now, in a year, 5 years or when you have had to pay your investors back in full?
• If you had a crystal ball what kinds of crisis can occur? Natural and Man Made?
• What happens during a market contraction? or Expansion?
• What companies and employers are relocating to and from the market?
• Are you acquiring a property in a Metropolitan area with 100,000 or more in population?
• Will your value adds equal the ROI you are forecasting?
• Have you under or over valued the property as it stands now?

It's important to ask yourself and partners to consider each and every reason this deal will lose money, fail or become a money pit. You should build a stress test questionnaire that asks dozens of questions and requires the input from all team players. Ask the hard questions. if you don't think it's hard enough ask it anyway.

If you do this you will succeed.