4 Sieves Model

Of Multifamily Real Estate Investing

 

 
 
 

 

Sophus Investments has developed a rigorous model that aids us in determining which commercial multifamily property is best positioned to deliver superior financial returns. With our guiding mission of wealth preservation and intergenerational wealth creation at the heart of our process, we critically evaluate all relevant qualitative and quantitative data.

 

4 sieves infographic

Sieve 1: Market Analysis
At the outset of our process, we take a hard look at the metropolitan statistical area or MSA. Over 50 different criteria inform our decision including population, median household income, net domestic migration, industry diversity, unemployment and more. We focus on growing and emerging markets where jobs and economies are expanding, where local governments are dedicated to attracting jobs and rents and property values are rising.

Sieve 2: Asset Analysis
Once an MSA is deemed attractive, we drill down on the asset itself, analyzing vacancy rates, unit mix and overall number, amenities and more. Overall, the asset must meet our requirements of Grade B to A- garden style building with light / medium value add opportunities. The more income a property generates, the more cash flow it can produce and the more it is worth.

Sieve 3: Submarket / Neighborhood Analysis
At this point, we take a close look at the submarket and neighborhood surrounding the asset to assess average household income, crime rates, public schools, rent comparables and proximity to amenities, highways/freeways and the industry center. Even an asset that looks great on paper will still be discarded if the submarket and neighborhood does not appear desirable.

Sieve 4: Financial Analysis (1st Round)
When an asset has met the hurdles of the first 3 sieves, we proceed to financial analysis. We drill into historical numbers, paired with the high-level assumptions of our asset optimization strategy and financing plans. If the asset passes this initial stress test, we move into successive rounds of financial analysis, further informed by an exhaustive due diligence phase with 3rd party partners, including our property management and capital teams, to confirm valuations and determine complete asset viability before acquisition.