How I read an offering memo in 20 minutes

An offering memo is a sales document. A good one is a beautiful sales document. Either way, somebody wrote it to make you want the building.

I read a lot of them. Here’s my first pass, and it takes about twenty minutes.

Minute one: the entry cap, on real income

Find the trailing twelve months of actual net operating income. Divide it by the asking price. That’s the entry cap on real income, and it’s the first number I write down.

Now find the cap rate the memo is advertising. It’s almost always computed on next year’s projected income, and next year is always better. Projected rents, projected expenses, projected occupancy.

The gap between those two numbers is the price of the story you’re being told. On the 45-unit building I bought in Boise this August, the trailing number was $492,291 of collected income against an $8,750,000 price. A 5.63% entry cap, on rent that actually hit the bank account. The deal penciled on what the building already earned.

If a deal only pencils on next year’s numbers, it doesn’t pencil.

Minutes five to fifteen: the three places stories hide

The rent roll. Not the summary, the actual roll. How many units sit below the “market rent” the memo claims? Is the claimed market rent proven by leases inside the building, or is it an aspiration from a survey? The strongest thing an offering memo can show you is a rent level the building itself has already achieved. The weakest is a comp table with no signed lease behind it.

The expenses. Two lines lie most often. Property taxes, because the county reassesses after a sale, and the memo usually carries the seller’s old bill. And insurance, which has repriced hard almost everywhere. Recompute both as a buyer, not an owner of ten years.

The capital story. Words like “renovated,” “new roof,” “updated systems.” Which brings me to the last habit, the one that has paid for itself more than any other.

Minutes fifteen to twenty: check the claims against paper

An offering memo on a building I was vetting said the roofs had been replaced. I had my AI agents pull the roofing invoices from the due diligence file and check them against the square footage on the page. The invoices covered two-thirds of the roofs.

Nobody was lying. The broker had written down what he was told, and nobody had checked. The difference was several hundred thousand dollars, and it was sitting in the file the whole time, waiting for someone to read it.

That’s the whole method, honestly. The memo makes claims. The paper underneath either supports them or it doesn’t. Twenty minutes of checking beats two hours of admiring the drone photography.

The version I write

After the twenty-minute pass, if a deal survives, I write my own memo. What the building earns, what breaks the deal, what happens if rents go flat. I published the real one from my last purchase, along with the downside case I ran before wiring money. It’s free, at neelypi.com/memo.

Run the twenty minutes on the next deal that lands in your inbox. If the two cap rates are far apart, you’ve found the first question worth asking the sponsor.