My partner and I evaluated over three hundred deals before we got our first one. Thinking back, it really makes you appreciate how much work is involved in finding good deals (winning deals is a whole other topic). What it taught us was that getting good deals is a numbers game. The more deals you underwrite, the more good deals you will find. Sounds pretty simple, right? The problem is, it takes a tremendous amount of work to fully underwrite deals. In this hot market, you have to move fast and make decisions quickly before your competition does. Having a process and tools you can trust to quickly assess deals is critical and should be in every deal maker’s tool box. Every deal we have reviewed has helped us build our view on what assets we like, which ones we think will perform well and has helped strengthen our quick screening process. Here are some key metrics we look at to quickly screen deals:
Median Household Income for 1 Mile Radius
Income to Rent Affordability Multiple
Median Home Value for 1 Mile Radius
Projected Population Growth Rate for Submarket
Average Vacancy for Submarket
Price Per Unit
Price Per Square Foot
Gross Rent Multiplier
Average Rent Per Square Foot
Going in Cap Rate for Recent Comps
Projected Exit Cap Rate for Submarket
Once we have the metrics above, we compare them with comparable deals from our deal database and make a decision whether or not to keep pushing forward. If a deal gets past this stage, we run the deal through our proprietary model which consists of two phases (a quick and dirty model we call Phase I and a comprehensive model called Phase II). If the deal gets this far, we are likely going to put an offer on it.
What are some other metrics you like when sifting through deals and what does your underwriting process entail?
About the Author
Jeff Yang is the President and Founder of Overland Capital Investments, a California Commercial Real Estate Private Equity Firm.
We take an institutional, transparent and hands on approach to multifamily with a focus on the Texas Triangle. We provide passive income to our investors by buying underperforming multifamily apartments, partnering with good people, impacting the communities we invest in and leaving a legacy for the next generation.