When it comes to multifamily acquisitions, access to precise data is the best way to ensure you’re structuring a profitable deal. Unfortunately, the data you can access is often external, generic and limited, which leaves you doing a lot of guesswork, and introduces risk into your process.

What if you could draw from the wisdom inside your own multifamily portfolios to create better deals? Rather than focusing on overall rental market trends and assumptions when structuring those acquisitions, what if you could look to the past performance of your multifamily portfolios to better predict future performance?

It makes sense that specific data—average occupancy rates, vacancies and expenses—is harboring all kinds of insights that are just waiting to help you efficiently craft more profitable acquisition deals. This real data about your properties is a far better predictor of performance than general data about neighboring properties.

The insights about how your properties run at both the macro and micro levels can help you craft more precise financials when putting multifamily deals together.

How Assumptions Can Make Good Multifamily Deals Go Bad

During an acquisition, you’re looking at revenue and expenses. The revenue side of that is pretty easy. You determine your number of units, what you’re charging now, what you think you could get in rent if that current amount expires, etc.

The expense side is a bit more challenging, mainly because you don’t have your own history with the property you’re looking to acquire.

Sure, you can talk to a local property management company to try and gather some data around the property, but how do you know if their feedback is reliable? You may receive historical financials from the seller (once your bid has been accepted and you’re in contract), and can use them to estimate your expenses going forward, but this is only a snapshot. You don’t have any context around those financials.

(For example, if you see a big spike in maintenance from the past year, it’s hard to know if that’s a one-time thing or something for which you need to be underwriting in the future.)

Due to that uncertainty, a lot of multifamily financial modeling is based on assumptions, even when crafting projections as big as your NOI. Unfortunately, many have come to rely on “rules of thumb.” This practice of applying standard cash amounts to certain expenses is really an inexact science, and that’s a problem.

Often, assumptions are used as baselines after underwriting is complete and the deal is closed; if the numbers diverge wildly from the pro forma, it’s going to reflect poorly on you.

For example, say that in your financial model, you have to show you’ll hit a 12 percent internal rate of return over a five-year hold period. If your expense assumptions are off even a little, you can move up or down half a percentage point, and that’s significant.

Using Your Multifamily Portfolio Data for More Accurate Acquisitions

To get out of the land of assumptions, it’s important to have data you can actually trust. This is where your own operational data can be incredibly useful for getting a clear sense of what you can expect in terms of performance.

Some of the insights that accurate operational data can give you include:

You can look up two years of data or more to identify trends or seasonality
You can find three or four properties similar to the acquisition and make assumptions based on averages of those
You can print out the analytics to show to the investment committee as historical proof

At Rentlytics, acquisitions are one of the reasons our Expense Management dashboard has been so popular with multifamily investors responsible for underwriting deals. By giving portfolio managers the ability to dig into the last one, three, 12 or 24 months of expenses for “like” properties, it’s easier to predict the expenses you may face for the new property over time.

Data metrics you can get insights into when looking at your own portfolios include:

  • Utilities
  • Taxes
  • Insurance
  • Payroll
  • Repairs and maintenance
  • Turnover expenses
  • Contract services
  • Marketing
  • Leasing

Relying on this internal data versus generic external data and rules of thumb will ultimately give you better, more justifiable deal structuring. With access to this type of data, it’s time to move past rules of thumb and assumptions when dealing with multifamily acquisitions.

For more on the types of operational data that matter, check out our ebook, “The Ultimate Guide to Operational Data.