Seeing the Scope

Great excerpt from this morning’s Bright Build newsletter by Sean Sweeney:

“And often, what the seller needs is for you to understand what the property means to them in the context of the wider neighborhood. Remember that I specialize in urban infill. I want to find parcels of land that are just big enough to carve out space for design-forward apartment homes for new tenants. And, I’m not knocking down shopping malls to do that. I’m developing a gas station and a corner store. Three neighboring houses. Maybe a vacant lot overgrown with weeds.

Which is to say that those sites likely mean something to someone else quite separate from my developer dreams.”

The importance of seeing the full scope of whatever project you may be targeting.

Each asset has a story and uncovering it can be a major catalyst for getting the deal done and better serving the surrounding community.

Layering Inputs

Before taking any leaps into real estate, it's crucial to conduct thorough due diligence to uncover potential pitfalls, your angle to add value, and the process it entails.

This just means: you need to find out what’s wrong with the property and the plan to resolve it (if you can), all while moving quickly.

Some key steps we've found helpful:

1.) Market Research: Analyze trends in property values, rental rates, and vacancy across streets AND neighborhoods.

A lot can change in a quarter mile stretch- the property might be on the exterior of the corridor you’ve studied and thus, won’t fetch the market rents for that area.

Don’t get caught in the wrong location.

2.) Physical Inspection: Even before the in-person inspection, review all current/historic listing photos and property maps that show the parcel.

When was the last time renovations were done (pull permit records, this is also included in the legal section below)?

If the property hasn’t been renovated in over 40 years, you may be dealing with cast iron plumbing and knob and tube wiring- have a plan.

What was the scope of the last renovation?

Was there a fire, flood, or any other event that triggered it?

How many electric, water, and gas meters are on the property?

How many water heaters, HVAC systems, etc?

What is the fuel source for the water heaters, HVAC, etc. ?

We’re trying to determine if units are separately metered with their own MEP.

Engage contractors in the inspection period to assess structural integrity, electrical wiring, plumbing, HVAC, and any other potential issues.

Get these priced out.

3.) Legal Due Diligence: Consult lawyers to review zoning regulations, property titles, legal encumbrances (liens, easements, covenants).

Pull all permits associated to ensure you’re not inheriting un-permitted work.

If the electrical wiring is newly roughed-in and there’s no permit, you can bet you’ll be dealing with that at some point in the future.

Lastly, ensure you’re able to execute your desired scope of work.

Zoning and variance legislation can change, make sure you're fully informed.

4.) Environmental Concerns: Any history of contamination or nearby environmental hazards could impact value.

Things like: underground tanks, asbestos, mold, groundwater issues, etc.

Have a plan for tests, remediation, or to walk away.

5.) Future Development Plans: Research upcoming infrastructure projects or developments in the vicinity.

While these can enhance the property's value, they could also introduce competition or disrupt the neighborhood's dynamics.

If there’s a brand-new apartment complex across the street with state-of-the-art amenities, it’ll likely affect your rental rates.

If they build an oil refinery across the street from your building, it’ll likely affect your property value.

The more information you can source, the more you can cross reference, and ultimately better position yourself to succeed.

How We Got Started

I took the picture below after purchasing my first multifamily property and specifically for my Mom.

I was 26 at the time and working for a development company based in New Orleans.

I understood the nuances of underwriting, entitlement/renovation processes, and property management, but never executed these alone.

This purchase was a first rep in refining my process and ultimately got me started in the real estate investment space.

"Refining my process" just meant: validating projected rents based on signed leases, comparing holding/renovation costs to estimates, leveraging marketing channels to better attract our target tenants, and implementing management processes to automate applications/rent collection/maintenance requests.

As importantly, it laid the foundation for my local network.

We spliced through referrals for contractors, attorneys, and insurance brokers before choosing the team we'd go to battle with (this required countless phone calls, in-person meetings, previous client referrals, you name it).

Real estate is a game of details and we matched our needs with people who were meticulous, on-time, and did things the right way.

That same team is involved in the operations of our portfolio of 4 multifamily properties today and has allowed me to take on more extensive projects over time.

You can't have every answer to each problem but you can empower experts in each niche and leverage them to mitigate pain points and ensure you're moving in the right direction.

We ended up beating projections and the property has continued to perform strongly since the day that nervous me signed those loan docs.

A scary step at the time but one I'll always be grateful for.