Due Diligence and Financing on 10-14 unit multifamily help

[Haresh Melwani]

Hello BP Family,

We are about to go under contract for our first small multifamily property. For discussion purposes, I will use a 10 - 14 unit in SC example. We expect to have a 30 day due diligence period followed by a 30 day period to close. Therefore, we have to close within 60 days from contract date. We would appreciate any insight on the purchase process and financing connections we can get.

Assumptions: 

1) Credit score of all parties is 720 or higher. 

2) For our due diligence, we are planning to have the following done:

  a) An inspection

  b)  A PCA (this includes an alta survey and an environmental study)

3) We would like to put as little as possible down and obtain the longest amortization possible.

Questions:

1) Does the 30/30 sound reasonable and could we expect complete due diligence within 30 days and to close within 60 days total?

2) Are we missing anything for due diligence?

3) If we are doing a PCA, should we still have an inspection done or does the PCA cover everything under standard inspection?

4) What can we expect for financing?

5) I would receiving information on lenders willing to finance this purchase for us. 

Thanks in advance for your help.

[Jaysen Medhurst]

@Haresh Melwani, congrats on the potential deal.

"An inspection" is vague. You want to check out every unit top to bottom to get a reasonable idea of how much deferred maintenance/repairs there are and what that's going to cost you right up front.

• If it's an older property, it may be worth while to have the sewer scoped.
• Check all of the water shut off valves, in the units and the shut offs TO the units. Make sure they're working properly.
• What about parking and common areas? Do they need upgrading?

As far as financing, if you haven't done a deal before, you're going to have a lot of trouble. This is a commercial loan (more than 4 units) and the lender is going to want to see experience AND cash reserves. Expect to have to put 25% down and show that you have the cash to implement a capital improvement plan, which the lender will probably want to see.

If this is your first deal, you will most likely have to partner with an experienced partner, which is actually a very smart idea.

Typically, a commercial loan is 20-25 years amortization and a 10-year term, but can vary widely.