Smart Questions to Ask Yourself Before Investing in Real Estate

When screening a deal, it is easy to get carried away in the jargon and excessive numbers presented to you in an offering memo or private placement memorandum. You are not expected to completely understand every intricacy of the deal. That is why you are investing with real estate professionals and not doing going at this alone. 

However, it is still essential to understand what is happening on a high level as you decide to invest with a particular sponsor in a real estate offering. Here at Breneman Capital, we have put together some smart questions to ask yourself when screening an investment property.

Location, Location, Location

1. Is the property in a good location?

2. Is the area growing?

3. Are there good linkages nearby (grocery stores, schools, public transportation, parks)?

4. Are there any negative linkages nearby that could be a detriment (train noise, fire station, homeless shelters)?

5. Employers and job growth in the area?

6. Accretive demographics: what are the household formations, median income, age, educational attainment?

7. What type of owners own the competing properties (institutional, private investors, mom, and pop)?

Function:

1. Is the property functional?

2. Will it have the same amenities as similar nearby competing properties (parking, outdoor space, elevator, ceiling height, in-unit W/D)?

3. What does the access look like? (Ingress/Egress?)

4. What is the unit mix/layout?

Intrinsic value:

1. How occupied is the property upon acquisition? Why is this?

2. What could the potential for this property be?

3. How did the sponsor acquire this property (off-market/ what were the seller's circumstances)?

4. Were they able to purchase the property at a discount?

Eyeball the Assumptions and Returns 

(Please see our How to Screen Real Estate Investments for Red Flags in 5 Minutes or Less post for more on what to look for in this section).

1. Do the returns make sense given the business plan and risk profile?

2. What are some of the key assumptions that have been made – do they make sense to you based on your preconceived notions of the market?

Sponsor

Last but certainly not least, the sponsor may be the most essential part of any investment. They are the ones underwriting the deal, bringing you the offering, deploying your capital, and executing the business plan. The sponsor controls how the investor's money is utilized, and they are responsible if things go wrong.  

When you look at the sponsor, here are some questions to ask yourself:

1. Does the sponsor have experience in this market and in the product type?

2. Do they have current or experience in doing this type of deal (core plus acquisition, value-add, development, etc.)

3. Does the sponsor have the resources to execute the business plan for the property?

4. What is their track record?

5. Are your interests aligned (fees, incentive-fee structure, GP investment, position in the capital stack)?

6. Do a quick Google search: Is there pending litigation or positive/negative news? 

If you do not have any significant question marks in any of these categories after your initial screening, the chances are that you are looking at a solid investment opportunity.

Breneman Capital For You 

Breneman Capital is a data-driven multifamily investment firm pushing the real estate industry into the future with a modern approach to direct real estate investments.

We focus on providing our investors with the best risk-adjusted investment opportunities in carefully selected markets across the U.S., researched and underwritten with extreme detail from our headquarters in Chicago.

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