Five Questions to Ask Before Investing in a New Deal

The BLVD Distribution

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The BLVD Distribution
December 13, 2024

What’s the first thing you look at when a new passive real estate investment opportunity is presented?  Is it IRR, cash-on-cash, equity multiple?  These are very important metrics, but we want to go behind the underwriting and offer five of the most important questions you should be asking when considering a deal.

Tell me about the location

When evaluating the location of an investment, you want to make sure that people want to live there and that they can afford the rents.  What’s the vacancy for competing properties in the neighborhood and broader market?  Regarding affordability, what's the median income in the area?  We like to see submarket median income that is 4 times the rent amount.

How does your business plan account for the year the age of the property?


Among the first things we want to know about a potential new deal is the year it was built.  This matters more than ever for two reasons:  Labor is expensive and that affects the budget needed to rehab the units.  Secondly, insurance is much higher on older properties.  Has a solid insurance quote been issued for the property? 

Our recent acquisition BLVD Banning Row

How much in property-level reserves are you bringing?

We have never done a deal where we thought we brought too much money to a deal.  This is why simply looking at cash-on-cash and IRR isn’t enough.  When comparing deals, we may bring twice as much in reserves as our competition, but we’ve learned from experience that cash is king, especially on older assets. 

What are the key assumptions being made that make this deal work?

Among the most common assumptions being made are rent pro forma targets, exit cap rate, operating expense pro forma and capital improvements budget.  How did the operator arrive at those assumptions? Are they conservative enough?

Where do things go wrong?

We’ve recently implemented a process called the post-mortem.  Before buying a property, imagine it’s 5 years from now and the deal did not hit the targeted cash-on-cash or IRR.  Why did it fail?  You must list three things.  Then, for each item list how that issue can be prevented and adjust the business plan accordingly. 

In Summary

Keep in mind that simply comparing IRR from deal-to-deal may not be enough.  These five items will help you better understand the odds of success towards those targeted returns.

Dan, Justin and Matt at the newly branded Northwood Apartments

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