November 7, 2018

JF1527: How To Perform An In-Depth Analysis Of Your Apartment Syndication Market Part 1 of 2 | Syndication School with Theo Hicks

It’s time for some more syndication school! This week’s two-parter will be about really diving into the best rental markets for investors for the purpose of learning about them for your apartment syndication deals. Never miss out on actionable advice when you subscribe to the Best Ever Show in iTunes.

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“Make sure you are sticking to the 3 Immutable Laws of Real Estate” 


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Find the Best Rental Markets for Investors

Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process but how to actually do each of the things, and go into it in detail… And we thought, “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to, or to learn more about the apartment syndication school, go to, so you can listen to all the previous episodes.

Theo Hicks: Hi, Best Ever listeners. Welcome to another episode of the Syndication School podcast series, a free resource focused on the how-tos of the apartment syndications. As always, I am your host, Theo Hicks.

Each week, we air a two-part podcast series focused on a specific aspect of the apartment syndication investment strategy. For the majority of the series, we will be offering a document or a spreadsheet for you to download for free. All of the documents and past and future Syndication School series can be found at

In this episode, we will be going over part one of a two-part series entitled “How to Perform an In-Depth Analysis of Your Target Apartment Syndication Market.” Last week – or if you’re listening to this in the future, episode 1520 and 1521 – we went over how to go from the 19,000 cities in the U.S., narrow it down to seven potential markets, and then narrowing it down to one-two target markets… But as I mentioned last week (in 1520 and 1521), the city and the MSA is not as important as the lower-level components, which are the neighborhoods or the submarkets or the street level. Because you can have two separate streets or two separate neighborhoods in a market that are completely different, and I went over an example of that.

The Three Laws of Real Estate Investing That Will Help As You Complete Your Property Investment Analysis

In this series, we’re going to go over how to learn about your target market all the way down to the street-by-street level. But first, as I mentioned in last week’s series, I want to go over the three immutable laws of real estate investing, because, just like the overall city is not as important as the neighborhood within that city, neither of those are as important as the business plan. So you can find the best market, have done all of your analysis, but when the time comes to purchase a deal, if you don’t know how to execute a business plan or your team doesn’t know how to execute your business plan, it doesn’t matter; you’re not going to do well. Whereas if an investor who is the best on the planet at executing a syndication business plan could invest in any market – the best market or the worst market.

At the top of the list of what’s most important in apartment syndications is executing the business plan, and the three immutable laws of real estate investing are three things that you need to incorporate into your business plan. By following these three laws, you are able to execute the business plan properly. And by not following these three laws, you’re the person who’s investing in the best market that doesn’t know what they’re doing and ends up failing.

If you’re a loyal Best Ever listener, you know what these three laws are, but I am going to provide additional information that we haven’t talked about in the context of these three laws. First, I will just quickly name the three laws, and then I’ll go into details before moving on to the in-depth analysis steps for your target market.

What Are the Laws?

The three laws are 1) buy for cashflow, 2) secure long-term debt, and 3) have adequate cash reserves. A good syndicator, when executing a business plan, makes sure they’re buying for cashflow, makes sure they are securing long-term debt, and they make sure they have adequate cash reserves. So what do each of those laws mean?

Law One: Once You Find the Best Rental Markets for Investors, Buy for Cashflow

For law number one, buying for cashflow, the opposite would be buying for appreciation. And what we mean by appreciation is natural appreciation, not forced appreciation. A good analogy would be natural appreciation is like gambling, playing Blackjack and having no idea what you’re doing and just hoping that you’re going to beat the dealer, or get 21… Whereas forced appreciation would be like playing Blackjack but you’re counting cards… So you have a strategy and you know which hands to bet on and which hands not to be on, and the hands you do bet on are the ones that will provide you with the cashflow.

Natural Appreciation 

Natural appreciation, following our analogy, is just hoping that the market naturally appreciates, so that the property values naturally appreciate, the rents naturally appreciate, just because of either historical trends or because it said something in the offering memorandum about the rents increasing a certain percentage each year, and you’re basing your investment off of that.

Forced Appreciation

Forced appreciation is when you go in and add value, which means you increase the revenue or decrease the expenses, which in turn increases the operating income, which in turn increases the property value. So you’re going in there and you’re forcing the value up, as opposed to hoping the value actually increases.

Consider Revenue Increases

In practice, the three things that you want to do to make sure you’re buying for cashflow is, when you’re underwriting a deal, make sure you have conservative revenue increases. Usually, when you’re underwriting a value-add deal, you will have the in-place rents, and then you’ll have your renovation budget, and then you’ll have the new rents that you will be able to demand based off of the new property. That’s where your forced appreciation comes in. But, at the same time, you also want to make an assumption of the rents naturally increasing based off of inflation, or just the market becoming stronger… So you always wanna have a factor in there, but you don’t wanna base that factor off of the historical revenue increases.

What will happen when you’re reading offering memorandums or talking to brokers or evaluating a market, you’ll hear things like “For the past five years, the rents have increased by 5% annually” or “The rents have increased by 30% in the past decade.” One way to enter the deal is to assume, “Okay, if it has increased by 5% each year for the past five years, let’s go ahead and assume it’s gonna do the same thing for the next five years during my business plan.” So you input that 5%, hoping/gambling that the rents will continue to appreciate at the same rate. If it happens – great. If it doesn’t happen, you’re not gonna be able to meet your return projections, and you’re gonna be in trouble with your investors.

If you instead assume a more conservative number, a more conservative revenue increase, which is 2%-3%, which is very conservative, then if it does better and it hits that 5% – great, you were able to exceed your return projections. If not, you’re still safe and able to hit those projections for your investors. So that’s one, the conservative revenue increase and not using historicals.

Consider the Rate Cap

Number two has to do with the cap rate. Again, if you are assuming the property is naturally appreciating, you’re assuming that the market is better at sale than it is at purchase, which means that the cap rate is lower at sale that it was at purchase. You don’t wanna do that, either. You wanna assume a cap rate exit that is higher than the in-place cap rate at purchase, which means the market is worse off.

Again, just like that conservative revenue increase, if the market does improve, then you’ve exceeded your projections. If it doesn’t and it actually gets worse, you’ve already assumed that in your underwriting and you’ll still be able to meet those return projections to your investors.

Plan Your Operating Budget

And the third one, which is kind of common sense, but you might not apply this when underwriting – it is making sure you are basing your proforma, your budget based off of how you will operate the property. From day one, the property will operate how it’s currently operating, but then once you take over the property, day two, then the expenses will change based off of how you will operate it, and then, over the course of the next 12-24 months, the rents will increase based off of your underwriting assumptions. Then you’ve got three, four and five, or however many years you’re planning holding on to that property, with how you expect the property to operate based off of, again, using these conservative revenue increase assumptions, as well as the conservative expense increase assumption.

Determine Your Purchase Price

Once you have that five or seven or ten-year budget, however long you’re planning on holding on to the property, then you assume a sale, again, using an exit cap rate that’s higher than the purchase cap rate, and from there you’ll have cashflow for five, seven, 10 years, plus the proceeds at sale and you’re able to determine the return projections to your investors. Based off of those return projections, you can set a purchase price that will meet or exceed what your investors want… So 15% IRR or higher, or 8%, 9% cash-on-cash return.

What you don’t wanna do is base your purchase price on just the in-place NOI, so how the property is currently operating, because yeah, it will have that NOI starting day one, but in 12-18 months that NOI is gonna be a lot higher, which means you could have paid higher for that property. So you’re gonna have a hard time finding a deal that pencils in financially if you are underwriting based on the in-place NOI as opposed to how the property will operate once you’ve taken over. So that’s law number one, buy for cashflow, not appreciation, and I went over three things you can practically do when underwriting to make sure you’re sticking to that law.

Law Two: Secure Long-Term Debt to Thrive in the Best Rental Markets for Investors

Law number two is to secure long-term debt. This one’s pretty straightforward and simple. The length of the loan should be longer than the projected hold period. So if you’re planning on holding on to the property for five years, your loan should be at least five years long, and ideally longer than that, but at least five years. The reason is because you don’t wanna be forced to sell or refinance, because you don’t know what the market conditions will be in a year or two.

Analyzing Types of Loans

Let’s say, for example, you decide to get a bridge loan, which is an in-between loan between buying a property that’s not stabilized until it’s stabilized and you can secure agency debt. Let’s say you get a bridge loan for two years, and you don’t get any extensions, and your business plan is five years long. And you say, “Well, the market is kicking, so in two years I should be able to refinance into a new loan and return some equity to my investors.” Well, what happens if, after one year, the market tanks and you aren’t able to refinance into a new loan, or you’re not able to pull out any equity and return that to your investors? You’re in trouble.

Whereas the same scenario, if you secure a seven-year loan from Fannie or Freddie Mac and the market tanks after two years, as long as you bought for cashflow and have appreciation, then you’ll be fine. You don’t have to sell the property, you don’t have to refinance, because your loan is not gonna be called. So that’s number two. Make sure that, when you’re buying an apartment property, you are securing debt that is longer in term than the hold period.

Law Three: Have Adequate Cash Reserves to Continue Succeeding in the Best Rental Markets for Investors

Then number three is to have adequate cash reserves. This past weekend, I visited some of the properties that my property management company manages, and a few of the properties were in really good shape. Tip-top shape, exactly how I want my properties to look. Then some of the other properties were in not so good shape, to put it lightly. When I reached out to my management company and asked them why, because, at first, I was concerned that maybe it was a management issue, but that didn’t really make sense, because if it was a management issue, why were some properties in immaculate condition and why did some properties look like they’ve been hit by a bomb? Well, that’s because the owners at the bombed properties could not afford to keep up with the deferred maintenance.

I live in Florida, in Tampa, and we just got past hurricane season, so there is a lot of damage to the properties from storms, but the owners did not have enough money to fund those repairs. Now, if they would have had adequate cash reserves upfront on an ongoing basis, it could have been a completely different story and the property could have looked much better and have been in much better condition.

What if You Don’t Have the Cashflow?

That’s why it’s important to make sure you have adequate cash reserves. Without these cash reserves, you’re not able to cover unexpected expenses like damage from a storm, for example, or an unexpected maintenance issue that comes up, like a flood, or HVAC breaks down. The roof was [unintelligible [00:16:40].01] than you thought it was and needs to be replaced. Things that weren’t accounted for upfront, you need to have the reserves in place to be able to cover those costs… Because, if you don’t, best-case scenario is you have to do a capital call, which again, is not something you wanna do, but this is best-case scenario, is to do a capital call from your investors to cover that expense… But that will reduce the investor’s overall return.

Or you just may not be able to distribute the projected returns. So rather than distributing 8% to your investors, you have to use that 8% for the next six months to cover the cost to repair the storm damage.

The worst-case scenario is that the unexpected issue is so bad and you can’t repair it and it starts to affect your economic occupancy rate, and that dips to the point where you’re not able to cover your debt service, so you can’t pay your loan. At that point you’re in huge trouble.

How Much Cashflow Should You Have?

So to avoid any of that happening, make sure that you have the adequate cash reserves. That comes in two forms – one, you wanna have an upfront operating account, which is approximately 1% to 5% of the purchase price, depending on the business plan. So if it’s a turnkey property, you’ll have a lower operating account, whereas if it’s a highly distressed property, you wanna make sure you have a little bit more cushion, because a lot more can go wrong the more you plan on doing to the property.

Then you also wanna have an ongoing reserve of approximately $250-$300/unit/year, again, depending on the business plan and the property type.

Now, this operating account fund and these ongoing reserves are on top of the interior and exterior renovations; it’s also on top of the known deferred maintenance issues, because that should be accounted for in your initial budget, and it’s also on top of the ongoing operating expenses, like maintenance and repairs and the turnkey costs. So this is specifically for unexpected issues, not for things that you already know about.

Those are the three laws. Follow those three laws and you will be able to execute the apartment syndication business plan really in any market. Now, moving on to the other topic I wanted to discuss today, which is to provide you with a very detailed approach for how to gain a better understanding of your target market on a submarket, neighborhood and/or street-by-street level.

Continuing Your Property Investment Analysis

Last week – again, that’s episodes 1520 and 1521 – we narrowed down the search from the 19,000 cities in the U.S. down to seven markets. You analyzed the seven markets across six factors, ranked those seven markets to select the top one or two, and now, in this episode, we’re going to talk about how to take those one or two markets and become an expert on those. So we’re gonna go over one approach in this episode, and in the next episode, I will go over other strategies to implement in addition to the strategy we’ll discuss in this podcast. Then, next episode, I’ll also go over how to create a market summary report based on your research following this approach and the other approaches discussed.

Find the Best Rental Markets for Investors Using the 200-Property Analysis

So this strategy is called “The 200-property analysis” and, being the Syndication School, we’re gonna give you a free document to aid you in this analysis. It’s called “The property Comparison Tracker Spreadsheet.” This analysis is going to have you log data for 17 different factors for at least 200 properties in your one or two target markets. I’m not gonna list out all the 17 factors right now; I will do that as we go through the exercise.

Why Complete This Property Investment Analysis?

The purpose of this exercise is to 1) become an expert on the market on a submarket and neighborhood level. 2) It gives you a good introduction into finding and reviewing deals, because once you have your team in place and you’re ready to find your first deal, you’re gonna be searching and reviewing a deal, so this is a good first step. Then the third purpose is for you to actually create a list of properties to eventually contact the owners when you are ready to find deals. So if one of your lead generation strategies is direct mail, for example, then you’ve already got a list of at least 200 properties to use as a start.

This process overall is five steps, and it’s pretty labor-intensive, so if you want to actually do a shortcut and you wanna pay for it, because the five-step process I’m gonna go over is technically free (I guess gas money). The shortcut is to either use CoStar or a similar service to log all of this data. You can also partner with a title company or a broker and have them pull this data for you, or you can hire someone on a service like UpWork and record a video of you pulling data for one property and then ask them to do it for 199 or more other properties in that market.

The Five Steps of the 200-Property Analysis

Step One: Search Your Target Market for Available Properties 

So let’s dive right in. Again, this is a five-step process, and it’s called “The 200-property analysis.” Step one is to search for your target market on Go to and type in your target market. Type in “Tampa Florida” for example. The reason why you wanna use is because they have essentially all of the information that you need to fill out your property comparison tracker. You can use other services like Craigslist, Zillow, LoopNet,, things like that, but is best for this specific exercise. If you wanna do additional research, by all means, use those other sites.

Once you search for your target market on you’ll be presented with a map of the target market, and for all listings that are currently available, those will be denoted as green diamonds, and all other markets’ apartments that aren’t available for rent are noted as little grey dots… Just to give you an idea of what to look for, and make sure you’re on the actual right screen.

Once you type in your target market and you’re presented with this map, in your spreadsheet, log the market name. In this case, Tampa, Florida.

Step Two: Review the Property Information

Step two is start searching for properties. Now, you should be presented with thousands of little green diamonds and grey dots, so click on an apartment building, either on the map, or there’s a list of all the apartments on the right-hand side as well… So click on an apartment and it’ll bring you to a screen with detailed property information. At this point, you want to log the property name; property address; the submarket or neighborhood name; the total rent; the total number of units; the rentable square footage; the rent amounts for one, two and three-bedroom units, depending on the types of units offered at the property; the year built; list who pays the utilities (the owner or the residents), so who pays for electric, water, trash, sewer etc.; and also copy the link and put that in the Source section.

You also want to determine if this property has opportunities to add value. So, if your investment strategy is the value-add investment strategy, which is what is the focus of Syndication School, then you want to put a Yes or a No under the value-add category. So, since you’re just looking at the property on, it’s not actually seeing the property in person, so how do you know if it’s value-add or not? Well, a few tricks is to look at the pictures, and if you see outdated interiors, then you know there’s opportunity to add value. Also, if you see no pictures or only a couple of pictures, that’s also an indication that there’s an opportunity to add value… Because, if they had brand new, luxurious units and amenities, they would most likely post those on, so when renters are searching they can see how great their property is. So, if there’s no pictures, then they probably don’t have nice units or amenities.

Another thing you need to look at are the other income or the fees that are charged. For some of these properties, it will list the types of fees – a pet fee, utility fees, things like that. So, if they’re not charging a lot of fees, that’s another way to add value. Maybe you can implement a RUBS program if the owner is paying for all the utilities, or maybe you can charge a pet fee, application fees, things like that. So not a huge value-add — RUBS is pretty big, but the other fees aren’t huge value-add… But these are ways to indicate to you whether there are opportunities to actually add value.

Now, if any of the data is missing – and the data that’s most likely to be missing would be the rents – then the best way to find those are to either 1) search for that apartment on the other sites I mentioned above, so Craigslist, Zillow, LoopNet,, see if you can find rents on there, or the last step would be to actually call the property and either say you’re doing a rental survey, rental property, or say you’re a resident looking for a potential property to live in, and ask them for the rents that way. So that’s step two.

Step Three of this Property Investment Analysis: Find the Owner Information 

Step three is to locate the owner information on the auditor or appraisal site. Google the target market name + county website, county auditor, county appraisal. So I’d Google “Tampa Florida county website.” The appraisal or auditor site will come up; it’s named differently in different markets… So click on that, locate the property search function, search the property based off of the address that you logged from, and log the owner name, owner address, and you’ll also find the appraised value and the year purchased on there as well. That concludes the 17 factors.

Now, something that you will find very common for apartments is that they’re owned by LLC’s, and the LLC address might be a PO box, or it won’t be the actual owner’s address. So, to actually find the owner of that LLC and get their contact information, search for the LLC on the Secretary of State website. On some Secretary of State websites, all you have to do is type in the name and it’ll show you the owner’s name. On other ones, you have to actually download the articles of organization and it’ll list that person’s name and where they live.

Typically, downloading is free, but you might have to pay for it on some Secretary of State websites. But, somewhere on the Secretary of State website, free or paid, you’ll be able to find the owner information of the LLC. So that’s step three.

Step Four: Repeat the Above 199 More Times

Step four is to repeat steps one-three for 199 more properties. Make sure that, when you’re looking at your other properties, try to focus on multiple neighborhoods and submarkets. Within Tampa, maybe target five neighborhoods or five submarkets… Submarkets would be better, depending on the size of your target market. If it’s a big target market, which it should be, focus on different submarkets within that overall market. So maybe pick five or ten, and then focus on getting 20 properties for each neighborhood.

Now, again, this is going to be pretty labor-intensive if you’re not using one of the shortcut approaches. So, if this is something you don’t wanna do or are wanting to avoid, or you’re listening to this and saying, “Theo, I’m not going to look up information for 200 properties”, if you’re thinking that, go back and listen to episodes 1513 and 1514, which is where we talked about your short-term goal and your long-term vision, and remind yourself why you’re doing this.

For me, I would focus on what actually disgusts me about not accomplishing my goals, and think, “Would I rather have that happen, or would I rather spend a day logging information on 200 properties?” Because, at the end of the day, this exercise will save you and your investors from years of headaches from acquiring an asset on the wrong street or the wrong neighborhood, and even better, since we’re eventually going to be reaching out to these owners, one of these properties could be your first deal. So spending that 8 hours doing this could result in hundreds of thousands of dollars from actually acquiring one or more of these properties. So that’s step four.

Step Five: Complete a Property Investment Analysis in Person

Step five is to actually do an analysis in person. This is gonna be something that differs based off of whether you live in or nearby your target market, or if you don’t live nearby the target market. If you live nearby the target market, what you wanna do is print out your spreadsheet with your 17 factors and schedule a full day to view these properties in person. Now, you’re probably not gonna be able to view all 200 properties, so it might take multiple days… For example, if you have five submarkets that you’re targeting, or if you have five submarkets that you logged data for, that you could spend five straight Saturdays going to five different neighborhoods.

So print out the spreadsheet and drive to the properties. When you go to the property, the first thing you wanna do is just take a general picture of the property, so maybe a picture of the monument sign or the clubhouse or what the property looks like from the street. And the reason you’re doing this is because you’re gonna be viewing a lot of properties over the next five weeks or day, so this will be your visual reminder of what the property was.

Next, you wanna take a picture of something noteworthy, something that’s good about the property – any large green spaces, fresh landscaping, newly-paved driveway, a monument sign that’s interesting… Just be creative here and find something noteworthy about the property. The reason you’re doing that is because, eventually when you reach out to the owners to see if they’re interested in selling, you can bring up this noteworthy item during the conversation, which will give you additional credibility, because they will know that you’ve been to the property and you were willing to put forth effort, and that indicates that you’re more likely to close.

On the opposite end, you also wanna take a picture of some things that are signs of distress. For example, maybe you see that the pool is uncovered in the winter or the pool is closed in the summer. You come across very poor landscaping, peeling paint, old roofs with shingles falling off, those super-old air conditioners that I’m sure you’re all aware of, any sort of fence that’s knocked down… Things like that. The reason why is because you did mark whether or not the property was a value-add opportunity during your online research, and this will confirm whether or not that was actually the case, as well as give you something to use as leverage when you eventually reach out to the owners.

Lastly, and this is something that you will most likely do naturally when you’re driving from property to property, but make sure you’re driving around the submarket or the neighborhood and looking at the points of interest. So look for any retail centers, office buildings, restaurants, hospitals, schools, universities… Something that the tenants that live there would want to go to, because the more jobs and entertainment and food surrounding an apartment, the higher the demand is, because people wanna be nearby those types of things.

Doing this, in combination with viewing all of the apartments in that submarket, will give you a great feeling for and understanding of that neighborhood, and you’ll have a level of understanding that would have been impossible to get without actually visiting the place in person.

What if You Can’t Visit the Properties in the Best Rental Markets for Investors?

Now, what if you don’t live near the target market? Number one would be to schedule a trip to the market. If you do that, you have to be very efficient with your time; if you live nearby, you can go there whenever, but if you’re traveling there, make sure you print out a schedule and, ideally, a map so you know exactly what properties you’re going to, in what order, and make sure you have all your spreadsheets printed out, a place to take notes, pictures, things like that. That’s one option.

If you can’t do that, another option would be to find a local partner. This could be a college student, it could be a broker or a property management company, depending on how well you’re tapped into that market. Send them your list of properties and have them do the in-person analysis described above.

The last step, which isn’t ideal, and it will not give you the same level of understanding you would get by actually visiting the market and properties in-person, but you could do the same analysis using the Google Street View function. Drop your little pedestrian guy in front of the property and take a look at it, making sure you look at the date of the picture, because if it’s anything older than a couple of years old, it’s likely not gonna be accurate. Then “walk” around the area with your mouse and look for the nearby points of interest.

Again, this isn’t ideal, but it’s better than not doing anything at all after you’ve logged the data in your property comparison tracker.

The Goals of This Property Investment Analysis

Once you complete all five of those steps, the goals that you have accomplished would be:

  1. Practice finding properties, and these could be potential deals in the future, and it’ll also help you find rental comps once you start reviewing deals.

  2. It helps you practice locating and logging relevant information that you need in order to qualify a deal.

  3. It’ll give you a better understanding of what to look for when you’re reviewing properties in person, and finally, the purpose of the entire exercise is to become comfortable with and more knowledgeable of your market on that submarket, neighborhood and street-by-street level.

That concludes this episode. At this point, you’ve learned the three immutable laws of real estate investing, which is buy for cashflow, secure long-term debt and have adequate cash reserves. Then we also went over the detailed five-step 200-property analysis process, and you are also able to download the free spreadsheet that goes along with this, at This concludes part one.

In part two, tomorrow, or if you’re listening to this in the future, go to the next episode – we will discuss seven other strategies to implement, in addition to this 200-property analysis exercise, to help you gain an even better understanding of the market. Then, we will also be going over how to create market summary reports, so taking all the information we’ve learned so far and distilling it into a synopsis, a summary document of our market.

To listen to other Syndication School series about the how-to’s of apartment syndications and to download your free property comparison tracker document, and all other documents, visit

Thank you for listening, and I will talk to you tomorrow.

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