Due diligence checklist for 24 unit property

[Carnet Williams]

Greetings. I just put under contract my first 24 unit property. I started with a four unit last November. I have started a checklist of items for due diligence (e.g. inspections, rent roll, etc). What do you all have included in your due diligence checklist on a multi-unit? What are the things I should make sure to check in on before closing? Thanks for your help or referral to available resources.

[Steve Morris]

Wow, if your second deal is a 24-unit in Marin, congratulations!!!

Do you have a broker or atty on your side?  If not, I'd hire someone that can explain the sales agreement and your responsibilities and timelines.

In OR on my apt deals, have 4 contingencies and I go with std/usual since by contingency I mean an item you need to affirmatively waive (if its well-written) since most SFR contracts assume you're OK unless you object:

1) Title (about 30 days after M/A) - You should get a prelim title report from escrow.  It'll list all the exceptions and recordings on the e.  You need to go thru these one by one since some will be removed at close (e.g. prop tax lien) and some survive (e.g. a standing easement).  Ultimately YOU need to decide, not title even if they advise you.  If it's a lot of land, you may want an ended title which includes an ALTA survey and inspection by a surveyor.

2) Books/Records (30 days) - Get the REAL rent roll and recent income & expense.  See if it is even close to what you want and what the broker (if involved) claimed.  If not, then you may want to retrade (request a price adjust) in return for waiving this.

3) Physical inspection (30 days) - Get someone that knows (like a licensed fee inspector) and go thru EACH unit and common areas. You're looking for possible repairs whether expensed (like dumpy apts needing rehab on a turn) or CapEx (roof has <5 years, siding has moisture invasion, leaky plumbing, paving is starting to break up). Again, if a lot, you may want a retrade to waive this contingency

4) Financing (90 days) - As of today, you really should have a "property must meet or beat appraisal" clause in your offer. This is the biggest heartburn on the amount financed since it goes directly to LTV. Then you'll need to meet all the other lender underwriting issues like personally qualifying and the property qualifying.

In any case, you haven't been there do get a good impartial (i.e. not a dual-agent) broker or atty.  Only issue is an atty knows contracts and gets items 1) and 4), but may not understand running an apt.  Also some attys spend 95% of their time worrying about the 0.01% eventualities (an over-stating) and may kill a deal.  Unfortunately, to get a good return, you need to assume some risk.