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- May 1, 2025
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Is This Deal Worth It? How We Evaluate Multifamily Opportunities
In the world of multifamily real estate syndication, one of the most critical steps in the acquisition process is pre-offer due diligence—the evaluation we do before placing an offer on a property. While a more extensive due diligence process happens after an offer is accepted, this early assessment helps us avoid wasting time (and resources) on deals that aren’t the right fit from the start.
At Old Money Capital, here’s how we approach this crucial step in our acquisition strategy.
1. Location: The Foundation of Any Good Deal
The age-old real estate mantra still holds true: location, location, location. But what does that actually mean in practice?
- The Starbucks Test: The presence of a Starbucks nearby often indicates strong neighborhood demographics and increasing property values. It’s not about the coffee—it’s about the confidence a billion-dollar brand has in the neighborhood.
- Visible Signs of Distress: We watch out for red flags such as homeless encampments, overflowing trash bins, broken fencing, or graffiti. These signs can point to deeper community and management issues.
- Safety First: We always ask ourselves—do we feel safe walking around the property? Would we be comfortable sending a property manager or leasing agent here? Safety is non-negotiable.
2. Underwriting: Crunching the Numbers
Before submitting a Letter of Intent (LOI), we perform a preliminary underwriting of the deal using broker-supplied financials, typically the T12 (Trailing 12 Months) statement and a current rent roll.
Some of the key things we look at:
- Projected Returns: We base our projections on conservative assumptions. Our standard model often assumes:
- ~5% annual rent growth (adjusted based on market conditions)
- ~2% annual expense growth
- A higher exit cap rate than the entry cap rate, to account for a possible market downturn at the time of sale
- ~5% annual rent growth (adjusted based on market conditions)
- Review of Financials: We go through the T12 and rent roll carefully to uncover any red flags—like underreported expenses or unsustainable income levels. If repairs and maintenance look suspiciously low, we dig deeper.
3. Value-Add Potential: What Can We Improve?
A strong investment opportunity often lies in properties that are underperforming today but have the potential to do much better.
We ask:
- Are there units that are outdated or in need of renovation?
- Is there deferred maintenance we can address—roof, plumbing, electrical panels, or the parking lot?
If the answer is yes, we factor in the necessary capital expenditures. While items like plumbing or electrical systems may not directly increase the property’s value, they are crucial for operations. If they’re broken or outdated, they must be fixed—there’s simply no choice.
- Can we improve management practices, increase curb appeal, or enhance tenant quality?
If everything is already perfect, the upside might be limited. We look for properties with “good bones” and clear value-add opportunities, which allow us to generate returns through smart improvements and better operations.
4. Physical Condition of the Property
Even before inspections, there’s a lot you can learn by simply walking the exterior of a property.
We consider:
- Visual Cues: Does the property look well-maintained or neglected?
- Year Built: Properties built before the 1980s often come with higher maintenance costs unless they’ve been fully upgraded.
- Major Systems: We look for visible signs of aging in the roof, plumbing, electrical systems, and HVAC—the kind of systems that can make or break a property’s long-term performance.
5. Tenant Base: Who Lives There Today?
The current tenants provide insight into the community, the management, and the income stream.
- Are tenants paying on time? We look at rent rolls and delinquency reports to get a sense of payment patterns and eviction risks.
- Section 8 Housing: We don’t automatically avoid subsidized tenants, but we’re cautious about properties that are 100% reliant on government vouchers. With uncertainties around federal funding, it’s important to have a balanced tenant mix.
We also assess tenant behavior by observing outdoor spaces—how people maintain their balconies, whether trash is left outside, or whether common areas look cared for. These details tell us a lot.
6. On-Site Visit: Always a Must
We never place an offer without visiting the property first. There’s a lot that numbers simply can’t tell you.
Even if we can’t get inside the units yet, here’s what we learn on-site:
- How the property feels
- How tenants treat the common areas and their own balconies
- How accessible the parking is
- How professional (or absent) the on-site management appears
These observational cues are invaluable. In many cases, they’ve helped us dodge bad deals—before spending time or money on them.
Final Thoughts
Evaluating a multifamily property before placing an offer is both a science and an art. It involves analyzing data, observing behavior, assessing physical condition, and asking the right questions. Our goal at this stage is to spot potential problems early and identify properties where smart improvements can generate strong returns.
In our next blog post, we’ll walk you through what happens after an offer is accepted—from inspections and lease audits to negotiating final terms and preparing for closing.
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