How Gatsby Selects Properties for Syndication
Gatsby Investment is highly selective about the properties we choose as syndication investment opportunities for our investors. We may review several dozen properties to find a single property with strong enough potential to become a Gatsby Property.
Are you wondering how we choose one property over dozens of others? Here’s a behind-the-scenes look at how Gatsby selects properties for syndication.
Step 1: Market Analysis
While we don’t try to time the market, we do leverage market conditions to make the most of our investments. So before we start looking at properties, we conduct a thorough market analysis, looking at factors like:
- Economic indicators. Employment growth, interest rates, and consumer spending can all provide clues as to how much people will be willing to spend on housing and investment properties.
- Local demographics. We look at population growth, household sizes and types, and age distributions to determine how wide the potential renter/buyer pool will be.
- Market trends. Identifying trends in vacancy rates, rental rates, and property appreciation rates helps us understand demand for different property types.
- Risk and return: We consider the risk and return profiles of different property types given current (and forecasted) market conditions. For example, house flips can be completed quickly and sold easily, but multi-family developments may offer better returns despite the longer hold period.
Step 2: Review of Property Features
Once we have selected a neighborhood based on our market analysis, we can narrow our search to specific properties that meet our criteria. Here are some examples of what we’re looking for:
- Accessibility. Our properties need to have proper infrastructure and easy accessibility to public transportation or main thoroughfares so it’s easy for residents to get wherever they need to go from the property.
- Zoning. We commonly convert single-family lots into multi-family housing to maximize returns and help ease the housing crisis. We need to make sure the zoning allows us to build what we want.
- Lot size, shape, and grading. We often look for lots that are large enough to either add an ADU (accessory dwelling unit) to the primary structure or to build a multi-family structure from the ground up. We need to confirm that the size, shape, and grading can accommodate our proposed buildings.
- Building restrictions. We need to know if there are limits to the properly zoned structure we can build on the property. For example, we may need to make sure the property sits a certain distance from the road or neighboring structures.
Step 3: Transformation Potential
To have transformational potential, we need to know we can get a good deal on a quality property that we can convert into a property that will rent or sell well.
For flips, we’re looking for a structure with “good bones” that we can quickly and efficiently add value to. For new developments, we need to consider the logistics of constructing a building in that location, given the constraints of everything from the lot’s current condition to street access for our construction crew.
In either case, we also need to consider which permits will be required and how long they will likely take to obtain.
We often choose properties that can be purchased for under $1 million, knowing that this leaves the potential for high profit margins. When constructing a new development, we focus on smaller buildings with 4-10 units. These structures have fewer permit restrictions, require less time to build, and appeal to a wider range of buyers than larger buildings.
Step 4: Financial Analysis
We’re always looking to optimize returns for our investors. Just as importantly, we want our projected returns to be as accurate as possible for our investors.
So we carefully conduct a financial analysis for any property we’re seriously considering. This means projecting total costs, estimating the ARV (after-repair value), and calculating a realistic ROI for the project. We publish our figures on our website so you can review the financials before deciding to invest in a specific project.
Step 5: Due Diligence
If a property ticks all our boxes to this point, it’s time to drill into the details with a thorough due diligence check. This includes:
- Inspection. If we plan to keep the existing structure, we have a licensed inspector assess the physical condition of the property to alert us about any potential problems.
- Survey. We confirm the geographical boundaries of the lot, including any easements.
- Title research. We ensure that the current owner has the legal right to sell and that there are no encumbrances or property disputes to worry about.
- Environmental checks. Depending on the area, we may conduct an environmental assessment to avoid any unforeseen liabilities from issues like soil contamination or flood risks.
We only proceed with a project once we have confirmed that every aspect of the deal aligns with our strict criteria and goals.
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