Support with Due Diligence needed

[Dhanush Kondoth]

Hello Ladies and Gentlemen,

I am looking to buy a property in Indiana. This is a 12 unit property which is 1 unit short of 100% occupied. The property manager is one of the tenant and works in return for free rent. He has been there taking care of the property for 11 years. The current owner bought the property from estate sales after the original owner passed away early this year. He may be willing to do seller financing provided I can come up with a decent down payment that is agreeable to both of us. 

I have SFR and Duplex in Columbus but never owned a apartment/commercial property. What are the Due diligence I will need to do additional to what we usually do for residential properties?

Any other questions or red flags I need to look into? 

So far this is what I have done.

1. Checked the county website for facts on the property
2. Talked to the owner to cross verify what is on the county website. 
3. Took a virtual drive around the area via google earth/maps
4. Looked at demographics, market rates, market analysis, crime report and future prospects

 Its not Indianapolis but its a small city. 

Any thoughts and supports will be helpful. 

Thanks

Dhanush

[Account Closed]

The most important thing to check is to get their rent rolls and trailing 12 months of financials. Once you get the property under contract check ALL the tenant files to see if they have all the required documents by the state and especially the lease agreements. 

[Brandt Smith]

@Dhanush Kondoth I would get educated on MF real estate first. Most books / classes on MF real estate cover due diligence in depth.

[Dhanush Kondoth]

@Account Closed Thanks!

Any suggestions on title searching? should I look for a local title company to look into it or anybody across the country would be able to do this?

[Account Closed]

You should always do a title search on any property you buy.

[Matthew Schroeder]

You should absolutely, positively have a reputable title/escrow firm (preferably local, but not necessarily), do a title search, however, you can do that after you have submitted your offer, and the seller has accepted, as in the contract, it will stipulate that your purchase will be contingent on the seller delivering clean title.  

The title search can be done after the accepted offer, and if the title is not clean, the seller will not be able to sell it to you.  If it is clean, then he/she will be able to sell to you.  Make sure to review the title document which is ordered.  

Also, make sure that you are working with a good Indiana real estate agent, and they will guide you through that process, answer your questions, and make sure that there aren't any big "gotchas" later.

Good luck!

[Dhanush Kondoth]

But since this is going to be a seller financing and don't want to involve an agent at the moment, I can pay a local Indiana title company to verify the deed and also ask a real estate attorney to write up a contract putting all the ifs and buts in it. Is that a solid plan (I have not done a seller finance based purchase before).

[Scott Steffek]

Dhanush,

You can do a title search through any reputable title company. It usually takes less than 3 days to complete. This will let you know if there are any liens on the property. Even though this is seller financing, when you draw up the contract, it wouldn't hurt to put some type of clause in it, that states the sale is contingent on obtaining financing. If you go to an attorney, I'm sure they can walk you through what needs to be put in the contract. 

I also agree with Steven. You need to see the "books". They need to provide all of the financials, rent rolls etc. Also, talk to the property manager. Ask him about how much money and time he spends fixing things in the building. You want to be careful that you're not buying a complex that's falling apart! That can deplete your profits every quickly. Good Luck!

[Robert Martin]

1.  Make sure all rental deposits are itemized and transferred at closing.

2.  If the property was built prior to 1978, all tenants MUST have a signed Lead         Based Paint Disclosure on file.

[Dhanush Kondoth]

@Robert Martin those are good points I would have definitely missed. Since all the property I have owned never came with existing tenants. 

@Scott Steffek Thanks. I will be doing he title search and contingencies. I will definitely be getting the rent roll.

I think I am more equipped now to deal with this. Thanks guys. Will keep you posted on how it goes. 

[Scott Steffek]

Dhanush,

If you have anything I can help you with, feel free to PM me and we can talk on the phone.

Good Luck!

[Mindy Jensen]

@Dhanush Kondoth, I didn't see Tenant Estoppel Statements in the above list. Just because the landlord produces a lease doesn't mean that's what the tenants have been paying. Have the landlord show you the leases AND get Tenant Estoppel Statements telling you what they've been paying in rent. Any discrepancy is a HUGE red flag.

[Dhanush Kondoth]

@Mindy Jensen sorry for my super quick response. Thanks for the heads up, I will definitely look into the estoppel statements.