Negative reviews signals to us that there is room for improvement. We aim to sell our properties at a substantial value add, so the poor reputation of the property allows us to turn it around at a considerable gain. We often rebrand the property, with a new name, website, and property management team. In terms of negative reviews, we’ve learned operational improvements are key. We seek out ways we can boost retention and minimize turnover.

We always choose deals in which the property and capital expenditure costs are lower than the value of neighborhood comps. Why? Because the difference is that equity is there for the taking, and that boosts cash flow at sale! Consider this – if the acquisition combined with the capital expenditure costs equal (or are greater) than comparable properties in the neighborhood, then the sponsor is paying too much for the property and profits at sale (or return of equity if refinanced) will be drastically diminished.

When choosing whether to participate in a deal, you should absolutely consider crime stats for that area when you’re analyzing the market. You can easily view crime statistics via Crime Reports online. If the crime rates seem on the high side, it’s not necessarily a deal-breaker. A downward trend in crime rates may indicate improvement.

A sensitivity analysis (also called a “what-if” analysis) is a way to forecast outcomes based on various variables. It helps predict all the possible returns under varied economic conditions, including downturns. As there’s always a possibility that we may not achieve our rental forecasts due to either higher vacancy rates or lower rents than projected, it’s important to analyze possible "bad endings" so our investors are 100% clear on worse-case scenarios, as unlikely as they may be.

To qualify a market, one must look at various market factors. Sponsors often look to changes in unemployment, population growth, population age, job diversity, as well as who the top employers are in the market as well as supply and demand of real estate.

“Medium incomes” is the median income of the area. With this information, you can determine if the demographics support rent projections. It’s well known that people spend between 25%-35% of their annual income on home-related expenses. Be sure that the median income is at least 3-4 times higher than the annual projected rent. To dig deeper, visit US Census Bureau for detailed income demographics across the country.

In our experience, most owners sell because they’ve achieved the goals they set out to achieve per their business plan. However, there are cases where the owner sells because they need the money or perhaps because they had trouble managing the property or did not achieve the cash flow they had forecasted. The latter is often is due to not making significant value-add renovations to the property.

An easy way to eyeball the quality of a market is the quality of its school districts as well as how the elementary, middle schools, and high schools are ranked. In our experience, even if your target market doesn’t include families, the school districts are a good indication of market quality. To dig deeper, visit Great Schools.

The market vacancy rate is the average multifamily vacancy rate in the market. We prefer a more accurate market vacancy rate based on recent sales comps. In addition to asking your sponsor what the market vacancy rate is, be sure to ask them how they’re calculating the rate. You can then compare that rate to the assumed vacancy rate for the deal at hand.