When you commit to investing in a multifamily development project, sign the PPM (private placement memorandum), and transfer your funds, you’re work is officially done. Congrats! You’re now a passive investor.
As a passive investor, you’ll have minimal influence over the project’s execution, from site construction to final unit delivery and stabilization. You rely on the development team to navigate the complexities of construction, manage timelines effectively, and bring the envisioned property to life while safeguarding (and growing) your investment.
This is precisely why thorough due diligence on both the project and the developer is crucial before committing to invest. Investigate their track record in similar projects, understand their risk mitigation strategies, and address any concerns you have about the local market or construction process BEFORE investing in the project.
The following list of questions serves as a comprehensive guide for evaluating ground-up multifamily opportunities. It covers crucial aspects that should be on your radar as a potential investor in new construction projects.
While some information can be found from reviewing the investment summary or independent market research, many of these questions will require direct communication with the developer to fully understand the nuances of the development process and the team’s approach to building a multifamily project.
Here are 93 questions you can ask:
- What’s your track record with similar multifamily developments?
- How long have you been developing in this specific market?
- What’s the total projected cost of the development?
- How much equity are you raising from passive investors?
- What’s the minimum investment amount?
- How long will the project lease-up take?
- How many months of interest reserve are you budgeting for?
- Will there be retail and/or commercial built on this project?
- Are there any other new projects in the area being completed at the same time as this one?
- What’s the projected timeline from groundbreaking to completion?
- What’s your target tenant demographic for this development?
- How many units are planned, and what’s the unit mix?
- What amenities are you including to attract tenants?
- Who’s the general contractor, and what’s their experience?
- How did you select the location for this development?
- What’s the current zoning, and are there any pending zoning changes?
- Have you secured all necessary permits and approvals?
- What’s your projected rental rate per square foot?
- How do your projected rents compare to the local market?
- What’s the anticipated occupancy rate at stabilization?
- How long do you expect it will take to reach stabilized occupancy?
- What’s the stabilized yield on cost?
- What’s your exit strategy for this development?
- What’s the projected hold period?
- What are the anticipated returns for passive investors?
- Is there a preferred return for investors? If so, what is it?
- How are profits split between the developer and passive investors?
- How often will you distribute cash flow to investors?
- What type of financing are you using for the project?
- What’s the loan-to-cost ratio?
- What’s your planned exit cap rate?
- How confident do you feel with your underwriting and projections?
- Are you planning to refinance this project?
- Who are the key members of your development team?
- What’s your contingency plan if construction costs exceed budget?
- How much contingency is built into the budget?
- What’s your strategy for managing construction delays?
- Have you conducted a market study?
- What are the major employers in the area?
- Are there any major infrastructure projects planned nearby?
- What’s the population growth trend in this market?
- How are you addressing potential oversupply in the market?
- What’s your marketing strategy for leasing units?
- Who will manage the property once it’s completed?
- What’s your experience with the chosen property management company?
- How will you communicate project updates to investors?
- What happens if an investor needs to exit early?
- Are you personally investing in this project?
- What fees are you charging for this project?
- How did you determine the projected construction costs?
- How are you mitigating environmental risks?
- What’s your plan for cost overruns?
- How are you handling potential supply chain issues?
- What’s your worst-case scenario, and how are you preparing for it?
- What insurance coverage will be in place during construction?
- What’s your plan for adapting to changing market conditions?
- How do you handle investor relations?
- What’s your policy on site visits for investors?
- How do you plan to compete with existing properties in the area?
- What’s your strategy for rent increases post-stabilization?
- How are you factoring in potential economic downturns?
- Will you be doing a cost segregation study?
- How do you handle tax reporting for investors?
- What’s your policy on additional capital calls?
- How do you select subcontractors?
- What’s your quality control process during construction?
- How are you addressing parking needs?
- What’s your plan for amenity spaces?
- How are you incorporating technology into the units?
- How are you addressing security concerns in the development?
- What’s your plan for ongoing maintenance post-completion?
- How do you handle investor questions during the project?
- What’s your experience with local regulations and building codes?
- How are you addressing potential soil or foundation issues?
- What’s your plan for common areas and shared spaces?
- How are you factoring in potential interest rate changes?
- How do you handle disputes with contractors or subcontractors?
- What’s your strategy for attracting commercial tenants if applicable?
- How are you addressing potential traffic concerns?
- What’s your plan for landscaping and outdoor spaces?
- How are you factoring in potential changes in building materials costs?
- What’s your strategy for handling potential legal challenges?
- How are you addressing accessibility requirements?
- What’s your plan for handling unexpected archaeological findings?
- How are you incorporating smart home technology?
- What’s your strategy for handling potential weather delays?
- How are you addressing potential changes in local demographics?
- How are you factoring in potential changes in local tax laws?
- What’s your strategy for handling potential construction defects?
- How are you addressing potential changes in building codes during construction?
- Is the Municipality investing any money into the project?
- How are you factoring in potential changes in insurance costs?
- How do you plan to celebrate the project’s completion with investors?
Conclusion
We hope this list got you thinking about new questions to ask. Remember, it’s okay to ask anything when you’re checking out a real estate deal. The tougher the questions, the better – it’s how you figure out if the deal and the people running it are worth investing in.
If you’re not getting straight answers, or if they’re brushing you off, that’s probably how they’ll treat you throughout the life of the investment. Don’t worry about missing out – there’s always another deal around the corner. Keep in mind that opportunities in this field are plentiful, so there’s no need to make hasty decisions.
