4 Ways Multifamily Investors Find Good Deals

Experienced analysts and investors know that there are always deals out there, even when market conditions aren’t ideal, as long as you know where to look.

So if you’re having trouble finding multifamily opportunities today, this post walks through four of the biggest green lights for multifamily analysts and investors looking for profitable deals.

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#1: Clear Opportunity, Low Risk

The first thing investors will often zoom in on when looking for a profitable deal is a clear opportunity for value creation with very low levels of risk.

Washer & Dryer Appliances

A great example of this is adding washer and dryer appliances to multifamily units that already have washer and dryer hookups. The appliances themselves usually only cost between $1,000-$1,500, and renters typically pay ~$50-$70 more per month for units that come with a washer and dryer.

Even if we assume our costs are on the high end of this range, if a $1,500 investment can help generate an additional $840 per year in rent, that’s a 56% return on cost with very little work or risk involved. And when you spread that out over a property that might have 200, 300, or 400 units, the impact on the revenue the property can generate can be huge.

Below-Market Rents from Occupancy-Focused Sellers

Another great example of this is a situation where a seller has prioritized minimizing vacancy at all costs, doing everything possible to keep the property 100% occupied at all times. This almost always results in rents that are ~10%-25% below market, which creates a clear opportunity for a buyer to re-lease these units at current market rates.

These types of scenarios often come up when the seller is an individual, has owned the property for a long period of time, and has used the property to generate predictable monthly income at the expense of maximizing revenue. This provides a new owner with a low-risk opportunity to step in and raise rents to market on new leases and renewals, without requiring any costly or time-consuming renovations.

Partially Completed Value-Add Programs

Another example of this is a deal where the current owner of a property has already proven out a value-add opportunity, but hasn’t finished this entirely.

These cases typically involve a seller having already renovated a small percentage of the units at a property, generating significant rent premiums on those units once those renovations were complete, and all the buyer needs to do is step in and continue that process over a longer period of time.

#2: Underutilized Common Area Space

The next thing that investors will often look for that can add a lot of value to a property quickly is underutilized common area space that can be repurposed to generate income.

Turning Unused Space into Revenue

There are a lot of properties out there that have things like closets, sheds, or entire plots of land that sit entirely unused, and these can often represent huge opportunities for investors to turn these into income-generating assets.

Tenants are often willing to pay an additional monthly fee for access to things like storage units, bike lockers, package lockers, or even co-working spaces, and utilizing previously unused space can be a huge unlock for a property’s revenue.

Adding Amenities

Many properties will also have opportunities to add things like carports or garages to an existing parking lot, especially if comparable properties in the market also offer these. Things like dog parks or dog washing stations can also attract a wider base of residents, and generate higher up-front fee income and monthly rents overall.

#3: Opportunities to Reduce Operating Expenses

The next thing that investors will often zoom in on is recurring monthly costs that could quickly be reduced.

Renegotiating Contracts

This can often involve renegotiating major contracts for things like janitorial services or on-site security, bringing in a different property management team with a more favorable fee structure, or even using AI to replace a percentage of salaried leasing agents with virtual leasing assistants.

Curing Deferred Maintenance

Another common way investors will reduce operating expenses at a property is by curing deferred maintenance, or taking care of things like major roof, HVAC, or electrical repairs up front. This can often significantly reduce ongoing repair costs, which can increase the NOI and the value of a property long-term.

Other big line items that investors may be able to reduce are insurance premiums (through negotiating more favorable premiums than the seller), administrative costs (through tighter personnel oversight), or even property taxes if valuations have dropped and the assessed value needs to be appealed.

#4: Motivated Sellers

The last thing I want to mention in this post can take a little bit more digging, and this is finding motivated sellers who have an incentive to offload a property quickly.

Floating-rate debt maturities can often cause this in a rising interest rate environment, but motivated sellers also exist in stable interest rate environments.

Some investment firms are required to sell properties at the end of what’s referred to as their “fund life”, when all assets in the fund need to be liquidated based on the terms of the fund’s operating agreement. This means that even if market conditions aren’t perfect or the seller hasn’t entirely completed their business plan, they’ll still need to sell off properties and return capital to investors.

There are also a surprising number of investors who will hold properties indefinitely, with the goal of passing these down to their heirs at a stepped-up tax basis when they die. However, in many cases, those heirs don’t know how to manage commercial real estate (and don’t care to learn), and would rather just sell the property and take their chips off the table.

In these cases, investors can often come in and acquire deals at below-market pricing, typically in exchange for making the transaction process as smooth and painless as possible. Sometimes, these buyers will even be open to unique deal structures like seller financing, with the goal to continue providing an income after the property is sold.

Partnership disagreements can also lead to forced sales, and these often create opportunities to acquire properties with a significant amount of value left to be created, often at discounts to market value in exchange for a quick and easy closing.

How To Analyze Deals More Effectively

If you want to learn more about the multifamily investment analysis process and how to build multifamily pro forma acquisition and development models from scratch in Excel, make sure to check out our all-in-one membership training platform, Break Into CRE Academy.

A membership to the Academy will give you instant access to over 120 hours of video training on real estate financial modeling and analysis, you’ll get access to hundreds of practice Excel interview exam questions, sample acquisition case studies, and you’ll also get access to the Break Into CRE Analyst Certification Exam, which covers topics like real estate pro forma and development modeling, commercial real estate lease modeling, equity waterfall modeling, and many other real estate financial analysis concepts that will help you prove to employers that you have what it takes to tackle the responsibilities of an analyst or associate at a top real estate firm.