What to look for in a Multi Family Deal part II

At the time i am writing this article, i am in the process of acquiring my first property in the US. I am looking for a 160 unit multi family in Kansas as a value add. C to B Type. Mismanaged properties. Long term value add, as a cash flow play. 

In the last article we shared basics of what to look for. In this one we are going to dig in a little further regarding this matter.

When you are investing, you want to make sure you will get the return you are expecting. You can get this if you have a higher degree of certainty regarding your math.

You need to make sure you can collect rents and that the tenants will stay there and py you on a consistent basis

Question #1 - Is there a demand for that area?

Let's say Ford opened a brand new factory in a given. People started going there looking for jobs. They rent a house and stay there, because there is a reason for it. On the other hand if a factory closed and people are leaving. You need to know the Economics of the region you are buying your apartment complex, so you can assess what is going on there.

Question #2 - Can the tenants afford it?

You need to make sure they can pay. Check the tenant. If the paycheck is swollen by the rent, they can't afford it. You need a ratio of at least 3 times the rent, meaning the combined income(husband and wife) must be at least 3 times higher than the rent you are charging.

Question #3 - How are your rents comparing to the competition?

If there is a similar building across the road with similar everything, with vacant units and you are charging much higher rent, can you guess what is going to happen?

You have to put yourself in their shoes and make sure you would go there if you were them.

Otherwise you are deluding yourself into thinking you can keep those rents.

Question #4 - Are there barriers to entry?

In his book Zero to One, Peter Thiel talks about being the last mover. You don't need to have the first building, but you sure need to make sure you have the last. If there is a possibility of new development in the same area and you are one of the guys in the middle, this means that there will be a market competition for rents, and you will have a lower income. So, look for areas where there is not a great deal of development, because although demand is a good sign, too much demand means the rents will start to go down.