Due Diligence Checklist When Buying a Multifamily Property
When purchasing a multifamily property, the due diligence process is important to do for you to protect yourself and understand exactly what you’re buying. Many investors ignore the essence of due diligence and end up acquiring a multifamily building with much more work than they initially thought. When you get a property under contract after the seller accepts your offer, you don’t put your money down right away. You need to do a thorough due diligence on the property to make sure everything you’ve understood about the property up to the time of putting it under contract is accurate. It is one way to avoid future surprises that you could not before your purchase. There are items you should obtain or inspect further in your due diligence process.
Here are the due diligence items to focus on when buying a multifamily property.
One Year Multifamily Property Operating Statement
The best way to determine the future performance of your investment property is to evaluate its past track record. Don’t just close on a deal that will take large amounts of money without measuring its future success.
Rent Roll
Checking the rent roll is important because you should ensure the lease duration of the tenants matches the leases. The rent roll shows a schedule of rents, the amount each tenant should pay and the total that has been received. Many investors tend to neglect it, but it very necessary.
Lease Inspection
Get the copies of the leases and ascertain that everything is as you expected. You don’t want to find out later that there is a tenant with free rent at the back of a lease. Check it out yourself and ensure your investment is safe.
Property Unit inspection
Walking every unit for visual inspection of the multifamily property is a must. While it may only take you time to do the unit inspection, a professional inspector is preferable because that is what they are good at it. Let the units, utilities and exterior be inspected a report be prepared on the condition of the units.
Multifamily Property Contractor quotes
The cost of repairs and improvements on the property are not easy to determine yourself. Whether you have experience on the same or not, it is good to get quotes for the large items that will require improvement and include them in your property improvement scope.
Real Estate Tax Bills for the Multifamily Property
One of the sure ways to get to know more about a property is checking the tax data. Look into the tax bills of the current and the previous years. Check the date they were paid by the seller.
Know Your Market
Knowing the market is one factor that will affect the success of your real estate business. Learn more about the micro and macroeconomics of your market. Check the population and employment growth as well as the crime level. Knowing the strength and diversity of the market will allow you to make an informed decision on the multifamily property.
Knowing the competitors
You need to do a thorough analysis of the competitors in your area. Have a list of properties around your multifamily building and analyze them along with the rent they charge. What is the quality of the properties in the neighborhood?
Demographics
Do you know your tenants? Who are your potential tenants for the next decade? Demographics will help establish the viability of the multifamily property investment.
Look For Pending Litigation
Search the internet and work alongside an attorney to find any pending litigation. You need to know if there are pending lawsuits, structural issues, management track records and many more. The attorney will help you know if there’s litigation and how it can affect your ability to buy and close on the multifamily property.
Check for overdue tenants
You need to make sure you’re not to have challenges when you start managing your multifamily property. Check if the rents are paid on time and any arrears.