Investment Analysis Checklist

Pull the latest non-farm payroll, unemployment rate, and 5-year job growth from the Bureau of Labor Statistics for the metro. A market underwritten on tenant demand needs job growth at or above the national average; flat or declining payrolls are a red flag for rent growth assumptions.

Identify the top 10 employers, their headcount, and any announced layoffs or expansions. Concentration risk matters — a submarket where 40% of jobs sit at one employer is a different risk profile than a diversified one.

Pull 5-year and 10-year population growth from Census ACS data plus household formation in the renter-age bracket. Flag in-migration vs. out-migration counties — Census-to-Census shifts of 5%+ are meaningful for absorption assumptions.

Tie the seller's T-12 to bank statements and tax returns where possible. Common gotchas: owner-paid expenses booked outside the P&L, deferred maintenance pushed below the line, one-time concessions hidden in 'other income'.

Pull the seller's rent roll and compare unit-by-unit to comps from CoStar, Zillow Rentals, and Apartments.com. Loss-to-lease above 10% is an upside opportunity; below-market leases that won't roll for 18 months are a drag on Year 1 cash flow.

Physical occupancy is what the seller markets; economic vacancy (concessions, bad debt, model units, employee units) is what hits the wire. A property at 95% physical and 88% economic is materially different than the headline suggests.

Build a stabilized pro forma using market rents, market expenses (don't trust seller expense ratios), a 5-7% vacancy/credit loss factor, and reserves at $250-350/unit/year. Compare the going-in cap rate to recent submarket trades pulled from CoStar or Real Capital Analytics.

Insist on access to every unit, not the curated tour. Down units, units with hostile tenants, and units the seller declines to show are typically the ones with the worst condition. Photograph each unit with date stamps.

Engage a third-party PCA (Property Condition Assessment) consultant. Roof remaining useful life, HVAC age, water heater age, panel capacity, and supply-line material (galvanized vs. copper vs. PEX) drive the capex schedule for the hold period.

Quantify deferred items with vendor bids — not consultant ranges. Items above $5,000 should have a written quote from a licensed contractor and feed directly into the price negotiation or a seller credit at closing.

Phase I is required by most lenders and protects the buyer under CERCLA's innocent landowner defense. Common findings on multifamily: former dry cleaner adjacency, USTs, asbestos-containing materials in pre-1980 buildings, lead-based paint in pre-1978 buildings.

Phase II involves soil borings, groundwater sampling, or material testing depending on the Phase I REC (Recognized Environmental Condition). Typically 3-6 weeks and $5,000-$25,000. Adjust the diligence timeline accordingly and document any seller-funded remediation in the PSA amendment.

Single-asset LLC is the standard for liability isolation. For syndications, document the GP/LP split, preferred return, waterfall tiers, and promote in the operating agreement before signing the PSA — not after closing.

Pull at least three quotes — agency (Fannie/Freddie) for 5+ unit multifamily, regional bank for sub-agency size or value-add, and a debt fund for bridge if rehabbing. Compare rate, term, amortization, IO period, recourse, and prepayment flexibility — not just rate.

Run base, downside, and upside cases. Levered IRR target depends on strategy — 8-12% for stabilized core, 15-20% for value-add, 20%+ for opportunistic. Sensitivity-test exit cap rate (+50 bps), rent growth (-100 bps), and vacancy (+200 bps) before committing.

Investment committee review — share the model, PCA, Phase I, comp set, and recommended terms. Be specific about which findings drive a renegotiation: capex gap, environmental remediation cost, below-market financing assumption that didn't pan out.

Tie each price reduction to a documented finding — not a vague 'we found issues'. A seller credit for HVAC replacement supported by three contractor bids is harder to refuse than a round-number price chop.

Submarket pipeline (deliveries in next 24 months as % of existing stock), tenant employer concentration, and crime trend (UCR data) are the three risks that move underwriting most. Pipeline above 5% of stock typically means flat-to-down rents during lease-up.

Confirm legal use vs. current use, any non-conforming status, and exposure to rent stabilization (NYC RGB, CA AB-1482, OR statewide cap, MN St. Paul). Pull code enforcement history from the city — open violations transfer with the property.

Coastal, wildfire, and convective storm zones have hardened dramatically — get the binder before clearing diligence, not after. Confirm replacement cost (not ACV), loss-of-rents coverage, and that flood/earthquake/wind are addressed by named peril or rider.

Match the hold period to the loan term and the value-add execution timeline. A 5-year hold on a 7-year loan with a 5-year IO period is a common pattern; selling inside the IO window protects the IRR from amortization drag.

Default exit cap should be at least 25-50 bps above going-in cap to avoid underwriting cap rate compression as a return source. Tie the exit NOI to a defensible post-stabilization rent and expense assumption — not to the most aggressive case in the model.

Plan B and Plan C: cash-out refi at Year 3-5 (returning capital while holding the asset) and 1031 exchange into a larger asset to defer gains. Identify likely upleg targets and the qualified intermediary relationship before the sale, not during the 45-day identification window.