Multifamily Due Diligence

[Alissa Reed]

Hi BP family,

We are considering our first multifamily purchase. However, the listing agent basically included zero detail in the MLS listing. So we have no interior pictures to give an idea of number of units, no current lease rates, cap rate, etc. Even the agent that we work with has been unable to locate any beneficial data. We have requested to view the property since that appears to be the only way to gather tangible info on the property. But, my question is, what report data, lists, proof of income type things should we request from the owner. This will be the first property that we've purchased with a rental history. Everything else that we have done has been a flip project. Any advice would be greatly appreciated!

[Maxwell Manatt]

Hello Alissa,

I am starting out on the multi Family journey as well.

To start any kind of evaluation you need at least two documents. The trailing 12-36 months of operating statements and the current rent roll. That generally is enough to generate a ball park idea of value based on the NOI (net operating income) and whatever cap rate that type of property in that sub market is trading. Keep in mind that the seller provided operating statement might give a very optimistic view of either income or expenses. As a rule I generally assume expenses to be 50% of the gross income for my first look evaluation no matter what expenses the seller reports (unless its more than 50%, then I will use their number.)

From there you can get into more detail on what type of capital expenditure budget the property might need depending on what physical condition and what strategy might be best.

As far as due diligence once the property is under contract, or maybe before in some situations you will need a much more exhaustive list. I have found this list provided by Old Capital to be extremely useful:

https://static1.squarespace.com/static/56afdb21b09...

Cheers