Multifamily Investment Process
1. Market Analysis and Asset Selection
We review hundreds of deals in our target markets looking for properties with great value that will produce strong returns for our investors. This is done through a network of commercial brokers and industry insiders that inform us of deals as they become available. Only 2 to 3 percent qualify for an offer to be made.
2. Sourcing and Structuring
As part of determining our offer price, we analyze what the loan options are for the specific property being analyzed (underwritten) and receive loan quotes. We also look at the equity structure that will be used as well as projected investor returns. Only properties that can provide great returns for our investors are pursued.
The acquisition process is critical to the success of the project. There are several steps involved:
- Submit a Letter of Intent – This is a non-binding offer that provides the offer price and terms to purchase the property.
- Create a Purchase and Sale Agreement – Have an attorney create a Purchase and Sale Agreement (PSA or contract) that provides all details about the purchase of the property.
- Submit Earnest Money Deposit – This is normally 1-2% of the purchase price, is deposited with the title company within five days of the PSA being signed, and becomes non-refundable (goes hard) when due diligence is complete. These terms vary for each deal.
- Perform Due Diligence – This is an in-depth physical and financial review of the property. Every unit and building on the property is inspected. Inspectors are brought in to determine the condition of the roofs as well as heating and cooling systems. On older properties, a plumber may be brought in to run cameras through the lines.
- Select Lender and Loan – Many factors affect the interest rate for a commercial loan (i.e., length of the loan, amount of purchase price financed, prepayment penalty, if loan extensions are allowed, etc.). Once the particular loan has been determined, the lender will perform their own due diligence that will determine if there are any environmental or property line issues.
- Retrade If Required – If any serious issues are discovered that were not disclosed by the seller before the price was agreed upon or discrepancies in the financials are found, the buyer can request that the seller agree to a lower price or provide concessions.
- Completion of Due Diligence Period – After all inspections are done and any issues discovered are resolved, the due diligence period is complete and earnest money becomes non-refundable.
- Syndication – A SEC attorney is hired to create the syndication that includes the Private Placement Memorandum (PPM). The PPM is created for and must be signed by each investor in the syndication and includes all details about the investment. The SEC attorney will also create an LLC that will own the property.
- Fundraising – At this point, we will prepare a property package that provides the details of the investment. It will describe the property, value of the investment, financial projections, and anticipated returns. Investors will be invited to invest in the offering.
- Closing – The title company will complete the closing and ownership will be transferred to the LLC that was created for this purpose.
4. Asset Management
Once the property is closed, we work closely with our property management company to keep focused on maximizing income and minimizing expenses. Value enhancement opportunities are implemented. Cash returns are sent out and quarterly meetings with investors are conducted to keep everyone informed on the progress being made.
We constantly monitor the market and economic indicators to determine the correct time to sell the property. Once we determine it is the optimum time to sell, we will have a listing broker market our property and assist us in negotiating the best terms possible. After closing, you will receive your initial investment back along with your share of the profits from the sale.