Thread by @supermode_

I talk to investors on a daily basis, and most have no clue how to analyze a property.

Here is a simple playbook(with the free financial model)👇🧵

Quick preface:

I am not saying I do it the best way, But I have seen dozens of financial models, even from private equity firms, and have found mistakes.

A simple bug can totally put you in hot water, so I am surprised how so many don't take this step seriously.

But it's not just about a financial model; it's about your full due diligence strategy.

It's a way of thinking, and that's what I want to share today.

It has worked for me because I always undershoot, and I don't rely on market cycles.

Let's dive in:

First of all, this is a thread on 1-4 units since the value and financing are determined differently for 1-4 units than for >=5 units.

Drop a comment if you want a model for more than >5 units.

Let's work with an actual duplex I bought in the past.

- I got this one off-market from a broker in a hot market, and it had >20 offers
- I won by building relationships with major brokers & establishing street cred.

My leads are all inbound now.

Outbound stuff like mail marketing, cold calling, driving for dollars, etc; works for sure but is very low leverage IMHO.

If you want to grow fast, invest in inbound methods like broker or wholesaling relationships.

For SFRs, you can even try display ads (topic for another day)

Anyway here are the stages I went through for this one.

✅Stage 1

As soon as the listing showed up, I asked the broker for gross rent and the asking price to do an initial napkin analysis.

The rent info is usually not listed on Zillow et al. for any multis, so ask the broker.

I directly call the selling broker and ask them to represent me, which gives me a leg up as the selling agent doesn't have to split the commission if there was a buyer's broker.

If they don't answer, I always text and get a reply 95% of the time.

My goal is always to try to reach them within 30 mins of listing showing up, even if breaking my daily routine, which I am religious about.

Speed is critical with good brokers.

This is an easy way to stand out from other buyers. Shows you are serious.

• Gross current rents were ~ $1600 and asking = $153K

• Gross rents per month > 1% of asking, so this is an indicator that it might meet my cash-on-cash return goals.

I'll move it to the next stage.

Sorry for the interruption - If you are finding value, please quote tweet, or retweet the 1st tweet.

Takes me hours to write this, and only takes a sec to retweet.

Helps me reach more people and, in turn, understand what other valuable content I can write about.

Ok, back to it

✅Stage 2:

In this stage, I am trying to de-risk qualitative factors( See this pic)

I'll also get inputs for my financial model.

Again, this is stuff that is not listed on the online listing, so I have to call the broker.

I'll ask for:

• More pictures

• Property taxes, current insurance info

• Confirm the going interest rate with the lender again.

• The current rents per unit.

• The Sq footage and # of bedrooms per apartment so I can get rent comparables

• If the utilities are paid by the landlord, or are the meters separate so I can bill to tenants? In multi-families, some utilities are paid by the landlords.

• Are there any significant repairs needed? I don't do fixer-uppers

• Can the seller give a certificate of occupancy before closing?

This is the inspection the city does, and if not passed by the city, I might have to account for extra repair costs.

• Does it have laundry for all apartments? This is attractive to the tenants.

• Are all bedrooms really proper bedrooms? Sometimes there is a bedroom that is a walkthrough, and that can really reduce the rent projections. Sellers love to advertise incorrectly 😎

• Lease end dates so I can understand how long it will take me to up the rent to market rent

• Why is the seller selling it? They can make it up, but I still ask because the seller might be selling other properties as well, and this could give me more leads.

• Check that property is not in a flood zone.

✅Stage 3:

If all looks good, now a deeper financial analysis is worthy of my time.

I'll enter the data in the model(link at the end).

I have added in-cell instructions for anyone to follow along on this model.

Now, I look for a 12% cash return conservatively by year 2, and this has 13.86%(see top right) after year 1 itself.

So this looks like a go!

✅Stage 4:

At this point, I'll put in a verbal offer.

There is no point in drafting the written proposal until the seller accepts the verbal offer = which saves time.

I also arm the broker with a short bio to convince the seller of my ability to close. (See pic)

Most buyers don’t do this, and that little extra is what counts.

Also got a loan pre-approval in minutes from better dot com = Extra ammo!

In this case, the verbal offer was accepted the same day🎉

Because it’s extra work for me to review offers prepared by the agents, I write my own offers from my pre-built Docusign template #hack

Again saving time.

As soon as I receive the signed offer from the seller, the deal is live, and all parties have 45 days(per my offer) to do the work to close.

Check this pic for a high-level plan.

For the next 45 days, I do an autopsy to try to find any flaws in the property before finally closing.

See this pic for my live deal plan!

That's a wrap🙂

You can get the financial model here for free.

supermode.io/store

Also, if you found this thread helpful.

- Follow me @supermode_ for more

- Again It would mean a lot if you could retweet or quote tweet the first tweet of this thread so I can spread the insights.

Let's help others make sound decisions. 🙌🏼

https://twitter.com/supermode_/status/1646158131905306630