The First 10 Steps to Buying a Great Deal

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At, we love to bring our investors new and exciting properties to invest in. By the time you receive your beautiful Investment Summary in the mail we have already been hard at work for weeks and sometimes months to put that one deal together. As head of acquisitions, I thought it would be helpful and informative for me to share a few of those steps with you. After all, knowledge is power.

1. Deal Flow

We have worked for years to build relationships with brokers who will give us access to the best deals in the markets we are looking at. We are on each major broker email list for new deals and sort through them daily to see if they meet our criteria. We have also used these same relationships to obtain some off-market deals. These are deals that typically come at some discount because they are not bid up at the last minute. Off-market deals are brought to us based on our ability to provide the seller with a smooth and confident closing process. This is when our reputation starts to pay off. 

2. Picking a Deal

Once we have built a good deal flow, we sort through it to find the best property for our investors. We set our criteria and pick only properties that meet those criteria. Vintage (age), number of units, amount of value adds needed, the market (city), and the submarket (a neighborhood within the city) are some of the factors that we consider when qualifying a deal. Once we find a deal that meets all the high-level requirements, we move it to our basic market and property-specific database and begin the second phase of deal qualification. 

3. Getting the Financials

The first step after we have qualified, deal-based metrics is to obtain all the pertinent data for the property. This will always include the trailing 12-month expense report and the rent roll. It will also include things such as tax bills, demographic studies, collections reports, and the broker Offering Memorandum (OM) if the property is publicly listed.  

4. Getting Brokers Opinion of Value (BOV) and Call for Offers (CFO)

The next step is to find out the BOV. Another name for this would be “guidance.” This either comes in the form of a per door price or as a lump sum. This is the number where the pricing will begin. This is not the final selling number. Sometimes it ends up “trading” for less than the original guidance, but it most often trades at a price higher than the original broker guidance. Either way, this gives us a starting point for underwriting. If the deal does not make sense at the BOV then there is no sense in submitting a low-ball offer that works for your returns. It is irritating to the broker and is a poor use of time and resources. The second thing we want to know is when is the CFO. This timeline helps us prioritize our deal flow. This way we know which deals to focus on first and which deals we still have some time to finalize the numbers. 

5. Underwriting Version 1

Once we receive the BOV and CFO, we input all the data received in Step 3 along with the guidance in Step 4 into our initial version 1 underwriting. Version 1 underwriting contains some very high level and conservative pro forma numbers from the Gross Potential Rent (GPR) and other income perspective.   What we are trying to do at this stage is to determine if it makes sense to pursue the deal further. Time is valuable and we see so many deals come across our desk. It is imperative that we not spend time touring deals and involving our management companies until we have verified that the deal will work and achieve the returns we demand. 

6. Pro Forma

Once we see that the property will meet our expectation range from a returns perspective, then we send it to the property management company we have decided to use in this particular market to create a pro forma. It is important for the management company to compile their own pro forma apart from ours so that we make sure expectations are set at a reasonable level on both sides. For instance, we don’t want to overcommit the management company to an aggressive pro forma that will set them up for failure. We also want to have a pro forma on our side that holds the property management company accountable. 

7. Update the Underwriting

Once we have verified the management proforma (or budget) is in line with our expectations then we update the underwriting (UW) to include the more detailed and property-specific expense and income numbers as well as any proposed CapEx budgets and income growth potential. This is the stage where comps are looked at very closely and compared to the subject property.

8. Touring the Property 

Once we have triple verified that the deal will work in our UW model then we schedule a property tour with the broker. This is an opportunity to see firsthand where the property is situated in the submarket. We can discover if there are any capital expense items or deferred maintenance items that need to be addressed. It is a chance for us to look closely at the interiors and verify our upgrade plan. This is also a chance for us to build the broker’s confidence in us as a group and demonstrate our desire to purchase this particular asset. Therefore, we wait until this point to tour. We don’t want to tour properties that we are not confident we can purchase based on the guidance provided by the broker at the beginning of the process.

9. Submitting a Letter of Intent (LOI)

On the CFO date, we contact the broker and get a feel from them where the best and final cut off is going to be. This is the bid price that will get you an invitation to the second round of bidding. This best and final group typically consists of about five groups of potential buyers. Once we get a feel for the cut-off number and what terms are important to the seller, we submit our LOI. This is just a summary version of a Purchase and Sale Agreement (PSA). 

10. Buyer Questionnaire and Final Offers

Once we are in the best and final round, we receive the updated, most recent financials. We also receive a buyer questionnaire with questions about our group’s history, the number of properties in our portfolio, what our debt quotes look like for this particular deal, and a myriad of other questions that help the seller have confidence in the group that they pick. We submit this completed questionnaire along with our final offer via an updated LOI. A couple of days after these have been submitted, we have a buyer call with the seller at which point the seller can ask us questions about us as a group and about the deal itself and our underwriting. 

This is the process we have put into place over the years to help keep us efficient and to make sure we bring solid, conservative cash-flowing deals to our investors. It is only after we have been awarded the deal does the real work begin and our marketing team begins compiling the next Confidential Investment Summary.