Skip to content
Multi-Family and Apartment Investing

User Stats

35
Posts
9
Votes
Paul O'Connor
9
Votes |
35
Posts

Help please! First time multifamily/commercial investor

Paul O'Connor
Posted Mar 1 2023, 17:30

Help me please! I have the opportunity to buy a unique, rural, multifamily and commercial property… but I don’t know the things to look out for or to ask about or what to look up during my due diligence period. It’ll be my first time buying out of state and this type of property (I’ve only bought single family, not multifamily or commercial before and this is a  mixed bag, with a garage, with apartments above it). 

A friend brought of a few things that I never would have thought of:

1. It’s on well water, are there reverse osmosis system(s)? 

2. Who takes care of lawn care?

3. How are utilities paid? By the individual tenants or included in rent? 

4. Is there a public sewer usage fee? 

5. Is there a trash service fee or is that county provided? 

Do you have any good suggestions for things that I might want to ask for/about during my due diligence period?! I really appreciate your help. 

User Stats

24
Posts
7
Votes
Matt Calnan
  • Rental Property Investor
  • Lethbridge, Alberta
7
Votes |
24
Posts
Matt Calnan
  • Rental Property Investor
  • Lethbridge, Alberta
Replied Mar 1 2023, 18:28

Hey @Paul O'Connor

Congrats on the opportunity first of all. There are some really good due diligence lists out there that you could tap into. They will be REALLY comprehensive and you likely won't have to follow everything in there, but I always think it's rather to start with too much and widdle it down. Here is a high level example:

https://northeastpcg.com/blog/...

To answer your questions above specifically:
1) Yes, RO systems exist for well water. There should be a lot of companies in your area that offer this service. Have someone come out and take a look, it should be relatively inexpensive to complete. 

2) This is up to you and your leases. Usually on commercial properties you have CAM (common area maintenance) expenses which are fully paid proportionately by the tenants (based on square footage). However, mixed with multifamily you will likely want to allocate some of this expense either as a fee to the residential tenants, or more likely, an expense to the building/company itself. 

3) It depends on how your utilities are set up - do you have separate electric/water/gas meters? If so, then I always like to have tenants pay for utilities. What is typically more common (not always though) in multifamily is that some utilities will be included because they won't be separately metered. However, I would always ensure the commercial tenants are paying for their utilities. If it isn't separately metered for them, come up with some type of distribution of charges that you have in the lease. One important note - the common area utilities can be charged back to the commercial tenants through the CAM, though again you may need to pay a portion of these CAM expenses for the residential tenants. 

4) I have never seen a municipality that didn't have a fee associated with sewage. It should be easy enough to figure out though, just call the municipality and they'll be able to answer that for you.

5) Again, usually there is a fee for this, or it is included in your property taxes. But when dealing with commercial/multifamily property, you almost always have to have separate waste disposal. Again, a call to the municipality will quickly clear that up for you.

For due diligence, like I said there are some really comprehensive documents out there. But at a high level, I want to know property taxes, insurance, and utilities historically (and most importantly, VERIFY THESE YOURSELF). Historic vacancy rates, rental rates (are they increasing, staying the same, etc.), and issues with tenants. It's also really important to know the maintenance status of the building. Has it been well maintained, or are the owners trying to pinch pennies everywhere - which will now become your problem? What kind of plumbing and electrical exists? How is the roof? Is it wood building, brick, or concrete? What does the boiler/hot water/furnace look like? Have they been maintained? Do they need to be replaced relatively soon? 

Usually, on this type of property, you're going to need an appraisal and an inspection. But even if those aren't required, I'd always recommend getting the inspection done. It can help you stay away from a bad deal. Good luck with everything! 

User Stats

264
Posts
292
Votes
Trevor Richardson
  • Real Estate Broker
  • Reno, NV
292
Votes |
264
Posts
Trevor Richardson
  • Real Estate Broker
  • Reno, NV
Replied Mar 1 2023, 18:48

There is no direct answer to your questions. The utility questions are determined by the county or city you are in.

The lawn care, utility payments etc are all up to you the owner and the tenants. 

BiggerPockets logo
Meet Investor-Friendly Agents
|
BiggerPockets
Network with top investor-friendly agents who can help you find, analyze, and close your next deal.

User Stats

1,219
Posts
845
Votes
Benjamin Aaker
Pro Member
  • Rental Property Investor
  • Brandon, SD
845
Votes |
1,219
Posts
Benjamin Aaker
Pro Member
  • Rental Property Investor
  • Brandon, SD
Replied Mar 5 2023, 07:55

I have experience in rural multifamily and have a few tips. The cap rates are generally higher out there and can be enticing, but expenses are relatively higher. Make sure you first find your 3rd party contractors. That includes property management, plumber, electrician, etc. It's more difficult to get them to drive out to the country.

You mentioned lawn care. Make sure there are at least 2 in the area. Less than this and they will have you over a barrel. You should talk to the local government inspector and/or code enforcement person. They can tell you a lot about the building and you wouldn't get this service in a big city. Make sure you are willing to drive to the property at least weekly. The farther it is in the woods, the less likely you are to do this, and the property will suffer. 

User Stats

7,028
Posts
3,638
Votes
Drew Sygit#2 Managing Your Property Contributor
  • Property Manager
  • Royal Oak, MI
3,638
Votes |
7,028
Posts
Drew Sygit#2 Managing Your Property Contributor
  • Property Manager
  • Royal Oak, MI
Replied Mar 6 2023, 09:58

What type of leases are existing, Triple Net or other?