Contingencies on a 15 unit apartment building

[Ryan Evans]

I'm a realtor and own 10 units of small multifamily myself. I've done plenty of deals for investors and am familiar with the ins and outs of navigating offers on a smaller scale (1-4 units). Though, I'm about to write an offer for some clients to buy an off-market 15 unit apartment where much more is at stake. It's fully occupied, in good condition, has financials, and seems to be a fairly straightforward deal. 

My question is, what additional contingencies and aspects of due diligence should I be sure to include when making an offer to not miss anything that could potentially screw us down the road? I've heard horror stories of folks buying apartment buildings and getting caught up on things like zoning issues, utilities, etc. 

So far, I'm thinking inspection contingency, attorney contract review and acceptance, review of leases, financing contingency, estoppel agreements to prove the ownership of appliances and the status of deposits (many deposits on file are far lower than the monthly rents and sellers in Ohio regularly lie about who owns appliances and what the actual deposits on file are), unless there is a better way to approach this? And then all the usual purchase agreement stuff. 

My buyers have some concern about the current quarantine affecting our ability to see the units as well as the banks potentially having issues if things keep getting worse. It seems the financing contingency should have us covered, though. But I'm wondering if there is a good way to present this on a contract. 

Lastly, how can I ensure the financials are accurate? Review of bank statements?  Anyone can make up a spreadsheet and I always assume sellers are lying until proven otherwise because that happens 9/10 times in my area on investment properties. 

Thanks for any insight! 

[Ryan Daigle]

Hey @Ryan Evans, you're definitely on the right track here. Some additional items to make sure are considered:

• Make sure you include a due diligence period that starts only when you've received all requested docs
• Part of those docs should include bank statements so you can verify rent roll against actuals (and reviewing the statements may also bring to light other aspects you wouldn't have been aware of otherwise)
• Security deposits should be transferred to new PM
• Pro-rated rents for the month of close are transferred to new owners and reflected on HUD
• A list of all section 8 tenants, if any. Since HUD is a third party in these leases, you need to know who these people are and in what standing is the lease with HUD so you get paid

Hope that helps fill in some of the blanks!