Walk through each unit when buying apartments ?

Question

We are looking to step into the multi family area. We currently have a few SFR and I feel confident in walking through one and looking around. Is it typical to look through every unit when buying an apartment complex? We are looking at a few smaller complexes (10-20 units)

Also, how do you go about requesting financials? I'm sure everyone is perfectly honest when posting on Loopnet.....

Bjorn Ahlblad · Answer

@Kyle Gilbert I failed to walk one side of a duplex once-it was an OS buy. Ended up costing me about 30k. The duplex has doubled in value over four years, so the pain was not that bad; and it is in a 1031x

Walk with the inspector and go into every unit, garages, laundry areas-the works. Scrutinize the financials and leases thoroughly. Lessons are expensive in this business! LOL

Chase McArthur · Answer

@Kyle Gilbert

Walking through every unit is up to you. If that would make you more comfortable with the deal. It may burn up time on your DD because you will have to wait for tenants to comply.

As far as financials go, as a buyer you will typically need to submit an LOI and depending on the terms, submit earnest money to show you are serious.

Financials are a highly guarded secret, lol.

Brandon Sturgill · Answer

@Kyle Gilbert I agree with the group here...in difficult situations or with combative tenants it may make sense to issue LOI or even a contract with a contingency...so, get in the units you can, get the property secured with a LOI/contract, and then leverage the seller to see every inch of the property before you can remove the contingency and close the deal...

It's amazing the lengths some tenants will go to in order to prevent a deal from happening out of fear of the unknown...it's good to have leverage on the seller to assist with getting in the units if they want to sell the property. Worst case is pasting notice in advance and entering per the terms of the local landlord/tenant law....

...Didn't know Loopnet was still a thing...anyway, redacted bank statements and/or schedule E of the tax returns..verify deposits...sign a non-disclosure...pretty typical.

Columbus, Indiana- nice place. Home of Cummins, right?...good artist community there ;)

Chris Grenzig · Answer

@Kyle Gilbert a thousand times yes, walk every unit and take photos, especially of all the mechanicals!

If there is a broker request financials, and during due diligence request tax returns, general ledger, bank statements, etc. If they don't match up you go back and and ask for you deposit back and walk away from the deal, or you request a price reduction due to stated reasons. They'll either accept, negotiate or decline and you go from there.

Oleg Shalumov · Answer

@Kyle Gilbert make sure you do that for every unit. Good idea to ask PM who will be managing the property to walk with me. Also it would be smart to take pictures and videos.

Todd Dexheimer · Answer

Between you and your team, I would walk every single unit, as well as all the common areas and exterior. This is not a waste of time and has never burned up time on DD for us. We always include a clause that we will gain access to the units in 2 consecutive days and that the DD will be extended if we can't gain full access.

For financials, you require the seller to give you the certified rent roll, past 2-3 years of P&L, current T-12, all contracts, surveys, environmentals, lien waivers, tax statements, utility statements, bank statements, etc. This is written in the LOI and the PSA

Sam Grooms · Answer

Yes, you'll need to look in every unit, especially on your first purchase. We still do this at the 100+ unit level. There are third parties you can hire to do this for a few hundred dollars. Most large property managers offer due diligence as a service (unit walkthroughs, plumbing/electrical/roof inspections, and lease audit). We pay $1,000-$2,000 on 100+ units for this.

Regarding financials, just reach out to whoever posted the property on Loopnet. Ask them for the rent roll and P&L (T12).

Walk through each unit when buying apartments ?

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