Investors, whether in stocks, bonds, commodities, homes, land or apartments all know the necessity of due diligence.  In apartment foreclosure investing, it’s just as important. 

There’s a lot to investigate, from a market analysis perspective through valuation, cash flow analysis and return on investment, short and long term.  What is sometimes overlooked is the value of the added financial information available in an apartment foreclosure.

Banks have apartment foreclosure data:

Generally, the bank or lender holding the property has a big file of data on the property, from the initial loan application and financial analysis, to the situation at the time of the foreclosure.  The goal of the bank is to get out of the apartment management business and back into the loan business. 

A prospective buyer can usually get a look at some or all of this data, a great help in the due diligence process.  Once an investor has demonstrated credibility, the bank can see it in their best interest to share financial and apartment foreclosure property data that will aid the investor in making a purchase decision.

Normal market analysis is still important:

All of the normal items to consider in a local and regional rental property market analysis are still a part of an apartment foreclosure due diligence process. 

What are population demographics, and are people moving in or out?  What does the competition look like?  What’s the physical and structural condition situation?  What are prevailing rents, and how do they relate to the expected rents for the subject apartment property?  Are there any recent or known pending changes in local employment, commercial or industrial activity?  Are current rents at market rates?  How long are leases?  Are infrastructure or transportation improvements in the works that might increase property value or rentability?

Special considerations for the apartment foreclosure property:

Obviously, the major question in the apartment foreclosure due diligence process is to ascertain why the previous owner defaulted.  If high vacancy rates were a factor, then will the situation that created them still be in play? 

If credit losses contributed, was it due to employment issues, or was it temporary or something that isn’t expected to continue in the future.  Is the property occupied, and how are rents being paid?  If vacant, condition issues will be quite important.

So, the potential apartment foreclosure investor should expect to complete extensive due diligence.  But, some of the information that may have been difficult to get from an owner/seller may be easier to come by in the due diligence process for an apartment foreclosure.

I’ll share more with you soon…

Fondly,

Karen Hanover, CCIM Candidate
Apartment Education Institute, President

Tagged with: apartment foreclosure , due diligence , Karen Hanover , market analysis