Paying for physical and environment inspections (100+ units)

[Michael Yin]

I have several questions related to paying for inspections when buying large apartments (100+ units)

1. ) Where does the money come from to pay for the thousands of dollars these inspections cost? Does it come out of the pool of money that's collected from the investors for down payment, closing costs, and other transaction fees? 

2.) Are the fees paid directly to the companies performing the work before closing, or are they paid at closing?

3.)  If they're paid before closing, what happens if the deal falls apart due to inspection results? Is that money lost, and if it came from the investors, do they understand that things like that happen sometimes?

[Joe Fairless]

@Michael Yin great questions. Here you go: 

1. Buyer side. That being said, if you have a money partner you can agree to split due diligence costs 50/50 (or whatever you arrange) so you personally are not paying all of it. It's more difficult to do on your 1st syndicated deal but is possible. If the deal doesn't happen - you pay out of pocket. If the deal does happen, you can get reimbursed by the property for those costs. 

2. Depends. But, either way, you'll eventually have to pay them. Net 30 terms are pretty standard but it's better to pay immediately after job is done. 

3. It's gone. I don't recommend getting the money from investors on your first deal for due diligence costs because you don't want to start off on the wrong foot with them. 

Net-net, there's risk to you when syndicating a deal because you have upfront costs that won't be reimbursed if deal doesn't close. You could, and some do, split those fees with investors but I don't recommend that for your 1st syndicated deal.