Where does Due Dilliegence Inspection $$$ Come from?

[Robert Carlson]

Hello everyone, where and how have you acquired funds for conducting due diligence inspections after signing a purchase agreement? If you plan on syndicating or getting a partner who can be the loan guarantor -- and you want to do multifamily using other people's money -- where and how have you acquired the money necessary to pay all the inspectors that goes along with due diligence. It seems that for someone just starting out with little money to put down, that would be a big hurdle...especially if the due dillingence inspections finds something major enough to stop the deal or make it so buyer and seller cannot agree...Then, the new multifamily investor would need to find MORE money to do due diligence on the next multifamily property put under contract, with nothing to show from the first. So, how does the newbie multifamily investor not get into a debt hole right from the start with due dillienge inspections before sealing the deal? 

Where did YOU get the cash for your first due diligence period??

Thanks for any/all help!

[Michael Le]

The sponsor pays for it. If the deal closes then the sponsor is compensated from the money in the raise. If the deal falls through then of course you lose that money. That's part of the risk of this business.  

But to be blunt about it, if you can't afford to even pay for due diligence then you should not be syndicating deals and handling other people's life savings. There is a reason why the banks require the sponsors to have a certain amount of net worth and liquidity because they want to know that you are willing and are able to step forward to temporarily fund with your own money if the property requires it. How will you do that if you barely got past the due diligence costs?