When analyzing a property, you have to take into consideration the area, the type of property/business & the type of investor along with their specific intentions at the time.

For example...

The area; multifamily properties are looked at differently if they are in downtown New York vs. northern Minnesota in the middle of the woods. This is not to say the there are no good deals in northern MN, but multi-fam doesn't provide the same return as it would elsewhere. The area that the deal is located in is very important when cap rates, demographics, drive-by traffic, median income, etc all play into the profitability/return of a deal.

The type of property. We are involved in the charter school community and have buildings that are highly profitable (more so than class A office space). However, investors that are in residential or office don't see the same amount of value in these buildings as we do because they are unfamiliar with the industry and the tenants. They will typically shy away from these deals because 1. they don't understand E code compliance and 2. if they lose the initial tenant, they don't know where to go to solicit new tenants. This goes to show that just because there is a stong lease in place and the lease provides a good return, it doesn't mean that it is right for all investors. Also, with properties, most investors tend to stay away from night clubs, restaurants, gas stations, auto service facilities, laundromats and any other type of property that deals with cash transactions and/or environmental issues.

Type of investor. You have to look at yourself (or the investors you are working with) and ask, "What type of investor am I?" Meaning, what is your risk appetite? IE - Do you have the ability to cash-flow a deal for 18 months before it starts making money at a high return or are you willing to take a fraction of the return for the stability of positive cash-flow from day one? Are you willing to sink your money into a deal that has very little security?
How much work do you want to put into the deal once it is closed? IE - Owning 200 single-family rental properties may be much more profitable than 2 office buildings with NNN leases, but most investors would prefer the 2 office buildings.
What is my intention for this deal? IE - Are you utilizing this deal because it is very secure, as a method of parking money from a 1031 or are your utilizing this deal to create immediate income to fund other deals? Is this a short term buy, value add & sell or is this a long term hold?

Last, is financing. Financing can make or break a deal. Most people look at rate only. On a short term deal, I would hate to have to contend with yield maintenance (a type of heavy pre-payment penalty) and would much rather have a higher rate. You also need to understand the covenants and carve-outs that are placed on your financing. How much control does your financing institution have over YOUR property?

Everyone utilizes deals for different interim reasons with the end goal of creating wealth. Everyone's rational and exit strategies are different, which makes it very tough to analyze a deal in a general sense. For example, I am currently looking at a deal that is a below average property that will have negative cashflow when it is all said and done. On the surface this sounds crazy, but I can get the property at a very low LTV and utilize the equity for carrying costs AND to purchase another property that I want but I can't finance right now (long story) although has a great cash-flow. In a small picture sense, deal 1 is horrible, but combine both deals together along with my exit strategy, and you have a winner. Is is risky to have two deals contingent upon each other? Yes. I am I willing to take the risk? Yes. And do I have to ability to survive should the deals go bad? Yes, I have a good exit strategy.

All in all, in analyizing a deal, understanding the outside influences/circumstances is just as important as understanding the deal itself.

 

1. get the financials of the tenant and make sure they are sound
2. get the owners tax E schedules (you dont need the complete return)
3. get existing engineering reports and see if there are other possible uses for the property for future improvements/expansion
4. determine cash flow and cap rate
5. name your price

additionally, assuming you know the market, do an analysis of any future growth that can detrimentally affect vacancies.... example, in my neck of woods, recently built are several hundred thousand square feet of office space and the glut is killing the owners... avoid this scenario by speaking with township/city...

 

One more thing, to answer your question, "What steps would you take next?", I would look into the issues I presented above to really begin to learn about the deal before I made a move.