Due Diligence Questions For Multi-Family

[Mike Lynch]

Hi Guys,

Perhaps you see what seems to be a Multi-Family property that you are interested in on a website or MLS, etc. Some of the important property evaluation numbers are there, but many are not. At what point do you ask the Realtor or Owner a ton of questions? Do you call them on the phone and start firing away? Here's what I mean. Instead of driving right away and looking at the property and maybe taking time off of work, if I can get important numbers, I might find that the deal is a total "No Go" flop before leaving my home. Will the Realtor or Owner answer all of these questions below up front?.....How do you all do it?

Here are some answers that I would need to know:

1. Does this building have an HOA, if so how much are the yearly fees?
2. How much is the yearly property taxes on the land / building?
3. Is this an A: B: C: or D: property?
4. What are similar units in the area producing for rent each month?
5. What are the vacancy rates in the area?
6. What is the vacancy rate on this building?
7. Is the area growing or in decline?
8. Who (landlord or tenants) pays for water / sewer per month? (How Much ?)
9. Who (landlord or tenants) pays for electrical per month? (How Much ?)
10. How much is the yearly insurance?
11. What is the yearly operating expenses?
12. What is the gross Income per year?
13. What is the net income per year?
14. Who is the current property manager or management company?
15. Are all units currently occupied?...If not, how many are not occupied?
16. What is the yearly cash flow, after taxes?

Thanks!

Mike

[John Brinkos]

Although the listing agent/owner should help with those answers it would be wise to do the back research yourself. You can't get some of the information yourself and must rely on their information but there is a significant amount of cross checks that can, and should, be done to verify the information and make sure you are not being "snowed." I point it out because I just dealt with this on a small multi property purchase and should have caught a couple issues. Some of the rents that were previously claimed we not accurate and I could have caught that by doing some market comps on trulia, Zillow, rent-o-meter or whatever site you want to use. Also, the taxes were off by hundreds of dollars and I cold have verified that on the city website. That was exacerbated by the fact that the city reassessed after the purchase and adjusted the taxes higher based on the new purchase price. Luckily I am still cash flowing well and these mistakes are not biting me but they could have resulted in a very bad deal. Bottom line, although the agent and seller are sources of information if you don't do your own work then buyer beware...the old saying goes, "No one is ever more concerned about your money then you are so take advice but do your own work."