11 steps to create a top 1% real estate investment memo 📝

In todays download, I am excited to share the framework I use for every investment memo I create.

As many of you who follow me know, I am a sucker for templates and efficiency.

When I find something that works and allows me to make a process more efficient, I go all in.

I am confident this 11-step framework will help enable you to communicate the opportunity at hand in an efficient and clear manner.

So lets get into it!

11 simple steps to craft a top 1% real estate investment memo:

1. Property Picture

People want to invest in a story, not just any piece of real estate

A great story always starts with a great visual

The first page should be a stellar photo of the property and/or a great rendering

A few examples:

2. Executive Summary

This section is where you explain the high level busineses strategy, the project levle returns, and the reasons the deal is a good risk adjusted return

Ust this structure:

The Ask: 

The purpose of this memo is to provide a summary of the opportunity to make a $X dollar investment in a Class X, # unit asset located in City, State

The Story:

The property was built as a tobacco plant in the early 1900's

This plant was one of the 5 major producers in the early 1900's, with nearly X employees shuffling through the doors every day

The Business Plan:

Underwriting assumes $X dollars to acquire the land + building.

A full scope renovation will be conducted over X years for $X dollars

X units will be renovated, targeting X type of renter and a Y ROI is projected

3. Market Summary

In this section, you prove to potential investors the market you acquiring an asset in is strong and is ripe for future widespread asset growth

Why (or why not) is this market going to do better than the market down the road?

Who are the major employers?

What is the median income?

What is the average age?

Reference this blog post for a more detail on this topic 👇

4. Sponsor (GP) Information

The goal of this section is to familiarize yourself (or the sponsor who is running the deal) with investors. 

Which person/people will be specifically involved in operating this asset?

Why are these people qualified to do this?

Why should someone trust this team to be a tremendous steward of their hard earned capital?

What competitive advantages does this team possess?

What is the teams track record?

5. Project Description

High level information I include:

• Year Built

• Square Footage (Total and Rentable)

• Number of Units

• Unit Mix

• Amenities

• Roof age and quality

• Utilities

6. Underwriting Assumptions

A list of assumptions that should be covered:

• Cap Rates

• Market Rent Growth

• Vacancy

• Operating Expenses

• Real Estate Tax

• Insurance

• Capital Expenditure

• Debt

• Cap Rate / Hold Period Sensitivity Analysis

7. Rental Comparison Analysis

Why do the rents you are projecting make sense?

Did you pick them out of the sky to make the numbers work or do they actually make sense?

Create a chart similar to the one below

In a value add deal, if you put $X dollars into a unit, how much can you expect to raise rents?

8. Sale Comparable Analysis

Why is the price you are acquiring the property at accretive to the partnership?

Are you paying a premium or getting a deal?

How well of a job have you done negotiating the price?

Make a chart similar like the below to communicate the price you are acquiring the property makes sense

9. Partnership + Debt Terms

A few topics that must be communicated here:

Equity Terms

• Sources and Uses of Capital

• Equity needed to close

• Distribution Waterfalls/Promote

• Fees

• Buy/Sell Agreement

Debt Terms

• All-In Rate

• LTV

• Fixed/Floating Rate

• I/O Term

• Term

10. Reasons to Proceed / Risks Associated with the Investment

Reasons to Proceed

• Risk adjusted returns of X% IRR and X.X equity multiple

• Strong demographics

• Competitve advantages of X, Y, Z

• Attractive basis as shown in sale comps chart

Risks Associated

• General building/construction risk with value add activities

• Volatitlity in pricing of materials needed for value add

• Interest rate fluctuations

• Progressive political activities / real estate tax

• Volatility in insurance pricing

11. Next Steps Needed to Close

• Close on the property after 30 days due diligence

• Execute the operating agreement

• Negotiate loan documents

• Execute any other documents needed to close

That's all for today friends!

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Thanks again for joining me this week, it means a lot

Duke

Whenever you are ready, my real estate operating system, made to the exact specifications of institutional investors is availabe for you HERE