15 Things You Need On Your Multifamily Due Diligence Checklist

due diligence

If you are a seasoned property manager, you will have heard your fair share of due diligence nightmare stories. From uncovering leaky pipes in apartments to discovering a community-wide rat infestation that is leaving a trail of destruction in its path, it’s easy to see why due diligence checks are regarded as one of the most important factors when buying a multifamily property. Conducting due diligence inspections allows you to ensure you are aware of all elements and are adequately prepared for acquiring the property.

The ultimate due diligence multifamily report determines asset conditions, compares active leases against each other, pinpoints necessary renovations needed, and evaluates expenditures. All of which can be overlooked due to poor planning, lack of time, human error and paper-based methods. It’s crucial to streamline your checklist and ensure that it is strong enough to provide value to you when you are conducting your due diligence inspection. Missing an error in the inspection period could translate into losing hundreds of thousands of dollars.

Here are a few things that Snapinspect advises you include in your next due diligence report!

1 Inspect using a smartphone or smart device and reduce inspection time by 75%

Carrying out your inspection traditionally, with pen and paper is grossly outdated and time-consuming. Take advantage of technology solutions to streamline your process. Property inspection software like SnapInspect allows your team to record videos, take photos, document property conditions and conduct the entire inspection (start to finish) via their smartphone or device.

2 Ensure inspection checklist determines the condition of each item inspected

Before conducting the various inspections needed to complete your due diligence, make sure that your inspection checklists assess the condition of every single thing you are inspecting, from light bulbs to door handles, make sure your checklist leaves nothing un-inspected.

3 Mechanical Inspections

A mechanical inspection is when you inspect the conditions of the systems in the building for your tenants. These systems include things like plumbing, electrical, heating, and air conditioning. We suggest getting the main systems checked by certified specific professionals. These systems are not cheap to replace and can quickly consume your entire maintenance budget if they are in poor shape and need to be repaired.

4 Get familiar with the neighborhood and surroundings

Analyze the neighborhood the property is located in. If it’s in an unattractive area, like an industrial compound or an overpopulated low-income suburb it will be a lot harder to market and fill a vacancy. Take a look at policies, competitors rate, and the local market.

5 Financial Audit Report

A financial audit report is the in-depth results of an inspection carried out by a third party real estate consulting business. They provide a comprehensive analysis of the assets operating history and detail the individual components of the buildings operating income and expenses

6 Property Market Report

The property market report is a detailed compare and contrast review of the market your property is apart of. The asset is compared and assessed using factors like, rent price, unit type, occupancy rate, building age, historical stats, amenities and more depending on who is conducting the report.
The outcome of a property market report can be used to confirm your rental rates.

7 Photograph every asset linked to the property

The good, the bad and the downright disgusting. Photograph it all! By photographing everything, you ensure that everything in your due diligence inspection is backed up with proof in your reports.

Furthermore, finding any damage that was not mentioned by the seller will place you in a much better position when it comes to negotiating a deal.

8 Lease Audit

The lease audit is a standard review of the leases; this also includes the stated income and expense figures, billing methods and lease language. Usually, the lease audit is carried out by your property management company.

The primary purpose of a lease audit is in to verify that billing is accurate and in line with the lease terms.

9 Leave no stone un-turned!

A question that comes up a lot when speaking about due diligence is “Do I need to walk every single apartment when I’m doing my due diligence check?” The answer is yes. Big yes. Its crucial that you walk every single unit and document the condition that each unit has.

10 Service all contracts

When conducting your due diligence, it’s essential to review service contracts. Service contracts are contracts that address services you get done to your property. E.g., lawn mowing, pool cleaning, window cleaners, trash removal, etc. It’s common for service contracts to be maintained even during a change of ownership, make sure you check and see what your properties policies are.

11 Utilities

During your due diligence, it’s smart to confirm utility bills that you will be responsible for. These are things like water, gas, electricity.

12 Calculate the price of renovations

If you are planning to do extensive renovations to retain a higher rent rate, you need to calculate the expected return on investment. To help with this, you could use a tool like Snapinspect. Snapinspect calculates the highest cost for both exterior and interior areas. Whether it’s replacing carpets or restoring a retaining wall, Snapinspects due diligence compatibility will identify and calculate the costs involved with renovations.

13 Protect your tenants

During your due diligence checks, you need to retain copies of insurance certs for all fire, and liabilities and other policies maintained by the current owner of the property

14 Marketing Materials

Ask to retain a copy of all marketing materials and efforts from the owner, the more you know about what works and what doesn’t when selling to your target market the better!

15 Certificate of Occupancy

Make sure you get a copy of the current Certificate of Occupancy for each of the building(s) on the Property, and copies of all additional licenses and building permits required by applicable law to own, operate, manage and maintain the Property.

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