Due diligence is a part and parcel of any multifamily building buying strategy of an investor. This due diligence us usually done by the attorney of the investor as it is beyond the capabilities of the investor. Here are 9 important tactics and questions that should be used by any investor when planning to buy a multifamily property as a supplement to due diligence. Answers to these questions and tactics help you in taking an informed decision about buying the multifamily apartment building.
There is always a level of uncertainly in any multifamily property deal. Therefore, it is referred to as a calculated risk decision on the part of the investor. You cannot be sure of everything that the owner says or knows. You remain doubtful in your mind about the reason why the owner decided to sell the property when it is so profitable according to him. Owners never reveal their true feelings when trying to sell their multifamily properties. Thankfully, there are interesting ways of knowing more about the property beyond due diligence. Not all the questions and tactics described below are suitable for all transactions and owners. Be careful when using them as their use is dependent upon the nature of transaction and the nature of the owner. In any case, never use all these tactics in a deal.
Rent roll does not tell much. Can you tell where are the tenants employed?
You go through the rent roll but do not find details of employment of tenants. The data of tenant employment is usually on the rental applications. If the property is situated near Mexico border and most of the tenants work in a single factory, all your tenants will move out if the factory is closed one day. It is not advisable to buy a multifamily property where most of the tenants work in a single company.
Talk to former tenants
It is often a prudent idea to talk to previous tenants who have lived for a while but moved out because of some reasons. If they have moved out to stay close to their place of work, it is normal. But if they moved out because of trouble created by drug dealers, it is an alarming piece of information for you. Former tenants speak truth only as they do not have any vested interest in the property.
Is there a pattern in vacancy rates?
Look carefully at the patterns of vacancy in the property. If you find high vacancy rate during one season of the year, try to find the reason. Verify the reason for this high vacancy. Is there problem for the tenants during winter season or during the rainy season? You know it when you have talked to several people about high vacancy rates.
Take a close look at the property at different times of the day
If you have visited the property at the same time in your several visits, it is a good idea to look at the property at other times of the day. You will get to see new interesting things and discover how the building operates. You might see a dark and dingy parking lot in the evening or something that makes you feel unsafe in the premises of the building.
Inquire about the property with the local police
It is often a good idea to go to the local police station and ask question about the owner and the property. You might be surprised to know that the building or the neighborhood has a certain reputation in the eyes of the police.
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