Due diligence checklist

[Michael Whitman]

We're in the process of evaluating a multifamily near where one of my sons attend college.  On paper, the numbers work, it currently has renters in place, although month to month and one unit is actively trying to move somewhere else because they need more space. 

As I start to gather my thoughts on next steps, one that came to mind is my due diligence questions.  I'll be honest, this is the point I would normally get cold feet and pass on an opportunity. But, this community has been great in sharing advice, so we're going to dive a little deeper into this.

What are some of the due diligence questions you like to ask?  I think I have the basics down:
* rent roll or proof of rental payments over x period of time
* copies of owner paid expenses
* copies of owner repairs over the last couple of years
* clean title search
* home inspection

What are some of your favorite questions? I'm sure I'm missing some and I'm sure there are others who could close a deal and not worry about it.  For our first property, I'd like to make sure I'm thinking this through the right way.

Thanks all!

[Keyano Burgess]

Hi Michael,

You have pretty much all of your bases covered! As an investor-focused agent in the Cleveland market I always have my clients write the following contingencies in when buying a house that's tenant occupied:

1) Offer contingent on home inspection- usually a 7-10 day contingency period, this contingency allows you to either A) move forward with the deal B) renegotiate the price if issues are found, or C) walk away from the deal

2) Offer contingent on appraisal if you're going financing

3) Seller to provide copy of current lease agreement

4) Seller to provide a rent roll/tenant ledger with proof of payments received

5) Seller to provide copies of 3 previous months of any utilities paid by the landlord

6) Seller and tenants to fill out Estoppel Certificate. An estoppel certificate is a form you have the tenant sign that confirms their lease start date, the amount of their security deposit, and other things. It is a very good idea to get signed so everyone is on the same page.

Good luck with your investment endevears and feel free to dm me if you have any questions!

[Jonathan Greene]

Have you seen it in person? Your questions are fine, but I would be more worried about the asset and the future cap ex than the renters in general. You aren't going to get any of that information in advance of making an offer, outside of what they are providing which is usually a little slim. You usually need to lock up the deal and get a lot of those things done during the process.

Buying near your son's college would be a great idea if you plan on having him house hack there and manage or learn or use one unit as short-term or mid-term for when you visit.

[Colby Fryar]

@Michael Whitman  Congrats on the find!   It is normal to get cold feet but the main thing is to do the best due diligence you can do prior to going under contract-  "Pre-DD".  There are a lot of details that would be good to know such as size of multi, age, number of units, etc. If you have a rent roll that is great. It sounds like a duplex or smaller multi so getting detailed information for this size of property may be very limited. You will want to get a professional inspector and contractor that you trust to walk the property on the outside if you can't get in.  If you do go under contract, make sure you have ample DD period and that there are contingencies included so you can get your earnest money back.  It will really come down to the condition of the units and how fast you can get those rented.   

[Michael Whitman]

Quote from @Jonathan Greene:

Have you seen it in person? Your questions are fine, but I would be more worried about the asset and the future cap ex than the renters in general. You aren't going to get any of that information in advance of making an offer, outside of what they are providing which is usually a little slim. You usually need to lock up the deal and get a lot of those things done during the process.

Buying near your son's college would be a great idea if you plan on having him house hack there and manage or learn or use one unit as short-term or mid-term for when you visit.

 Thanks Jonathan, all good points. The property is a small three unit multifamily. The units are currently rented, which is great. My son was able to walk through the units the other day.  Sounds like there is some updates that can be made, but nothing immediately needed.  

[Andrew Freed]

@Michael Whitman - All good questions, however I think you are missing some major due diligence and that has to do with checking with the city on this property. That means calling the inspection office to see if they have an open permits, if it is in fact a legal x unit, does it have any housing violations, has their been any police activity near the property, have any of the current tenants had an eviction on their record. These are some of the items in addition to what you listed that I would be interested in during the due diligence process. Lastly, don't forget to get estoppels when you close, that is the tenant signing off on the current rental amount / funds you have escrowed. 

[Jonathan Greene]

Quote from @Michael Whitman:

Quote from @Jonathan Greene:

Have you seen it in person? Your questions are fine, but I would be more worried about the asset and the future cap ex than the renters in general. You aren't going to get any of that information in advance of making an offer, outside of what they are providing which is usually a little slim. You usually need to lock up the deal and get a lot of those things done during the process.

Buying near your son's college would be a great idea if you plan on having him house hack there and manage or learn or use one unit as short-term or mid-term for when you visit.

 Thanks Jonathan, all good points. The property is a small three unit multifamily. The units are currently rented, which is great. My son was able to walk through the units the other day.  Sounds like there is some updates that can be made, but nothing immediately needed.  

Here are some initial important questions, in addition and in line with what my guy @Andrew Freed said:

1. Is it a legal 3-family on the city card?

2. Are the separate mechanicals for each unit? 3 hot water heaters, 3 furnaces, etc.

3. Are there any open permits on the property?

4. Did your son take video of the entire basement? All the sunk costs are in the basement from structural, mechanical, water damage, asbestos, plumbing, etc.

[Gino Barbaro]

@Michael Whitman
DM me and I will send you our du diligence doc

Gino

[Chris Kittle]

Quote from @Gino Barbaro:

@Michael Whitman
DM me and I will send you our du diligence doc

Gino

 Hi Gino,

I'm in a similar boat to the investor who posted here.  Would it be possible for me to get a copy of your due diligence doc?  I am in the process of evaluating an 8 unit here in my home town.  Thanks for your consideration!

[Gary Nelson]

Here’s a quick checklist to cover your bases:

1. Property Condition: Get a thorough inspection to assess major items like the roof, foundation, and HVAC—this helps you plan for any big repairs.
2. Financials: Account for all costs, including taxes, insurance, maintenance, and property management fees if applicable. Ensure it cash flows comfortably.
3. Market & Location: Research local rental demand, property values, and any applicable LTR regulations to understand the area’s potential for long-term success.
4. Future Potential: Consider if the property could appreciate or attract quality tenants over time, supporting stable cash flow and asset growth.

This checklist should set you up for a solid LTR investment!