Triplex Due Diligence Must Dos and Don'ts

[Kelly Kormos]

Hi BP!  My husband and I just went under contract for our first Multi Family property (triplex) AND it is another part of the state where we do not live! (first time buying outside of our area as well)

I would love to hear what items we need to add to our checklist for the due diligence period for a MF/Triplex and for looking out of town. 

Any and all advice welcome!  

Thank you!  Kelly

[Jack P.]

Kelly,

First, I would seriously recommend a home inspection.  The ~$500 is well worth the price.  You'll want to pay (or ask the inspector to) close attention to the condition of the roof, HVAC, and water heaters for each unit.  

Assuming you have all the financials, here is what you are looking for:

-2 years rental history for each unit so you have a good idea of the quality of your tenants

-All expenses paid for repairs during that time so you can properly budget maintenance

-quotes for lawn/snow removal, pest control, trash (if not included in utilities)

-statement for the utilities.  I'm assuming you'll have to pay water.  If you're paying electrical, that's pretty significant.

-get on Zillow and check the rental comps.  if you zoom in on the property you can click on it and check the previous rental prices for surrounding units

-Check the tax bill.  

-The year it was built.  If it's pre-1970s, then you have to start worrying about lead paint.  Not sure when asbestos stopped being used.

-If the rental history has high vacancy, dig into why.  Are the units competitively priced? Is it in a bad neighborhood?  Is it in a good neighborhood, but in bad condition?

-Finally, make a list of at least 5 property managers in the area and talk to them about managing your property.  Ask them for a copy of their lease agreements (for the tenants) and the landlord contract (for you).  Scrutinize and compare those against each other.  Look at each company's web page and see the other types of properties they are managing.  Are the similar to yours?  What does the company look like?  Is it an office of 3 people who simply take 10% to collect rent each month, or are they fully staffed with office and field personnel.  What is their volume?  Good property management from distance ownership can make you, while bad management will break you.

After you've done all the above, closely go over all the financials to come up with your own pro-forma of how you think the property will perform with all of the above included.  

Hope this helps.  Please let me know if you have any other questions.