Help with due dilegence period for multi family complex

[Vince Greenland]

We just agreed on a price for a 96 unit class C complex. The complex is currently managed poorly with out of town owners and "suspect" management and maintenance personnel.

First, we own and manage 90 units and 30,000 SF of commercial space approximately 50 miles from the complex. My two brothers own the properties with me. We all have full-time jobs and have essentially a full-time maintenance man with help from other contractors as needed. We have been holding at about 2% vacancy for the last several years.

Currently, the complex is 17% vacant. We have been investigating the market in this area and it appears to be very similar to our current area. We have inspected several properties and feel the complex is very comparable. the other compexes have very low current vacancy rates that compare favorably to our current inventory.

The complex was built by the current owners in the early 1970's. It needs some work but is nothing that we havent dealt with before, however it is on a larger scale due to the number of units. The property is located in a desirable area near a golf course and public transportation.

Our plan is to employ one of the partners full-time to manage all operations. in addition we plan on hiring one full time employee to work at the complex. initially, we will have our current employee and contractors help to turn units around quickly.

The property is currently not marketed at all...no craiglist, newspaper, website, signs, internet marketing, simply nothing at all. We believe we can get to 10% in 6 months and 5% within a year. We actually think we can do it quicker but that is the goal.

The negotiated price yeilds a cap rate of 11.5% with the current vacancy and 13% with 10% vacancy. We used relatively modest capital improvements ($30K) and maintenance (5% of gross-does not include salaries) because we dont plan on using any of the income from the property for at least 3 yrs. i.e. everything we make will most likely be put right back into the property.

We are a little nervous because it doubles our current operations and will now invole a partner full-time. We have a 60 day due dillegence period and plan on hiring a local property mananement company to perform an independent assessment of the property. This assessment will also include varifying the rental market analysis we have done.

We have already verified the utilities and had our insurance agent view the property and give us a quote.

What other things would you do during the assessement period?

environmental testing? particularly mold, no current or noticeable signs.

Is it reasonable to think we can do the maintenance with one person? (we will supplement him with other contractors (including painting)) The current owner ship has 3 maintenance employees including the PM. However, we are not sure what they are actually doing given the lack of routine maintenance.