Multifamily assets are in high demand across the U.S. With so much liquidity in the hunt for multifamily deals, it can be tough to negotiate sufficient due diligence periods when competing with other offers. As a result multifamily investors need a solid strategy for effective due diligence. Here are 6 keys we follow to perform stellar multifamily due diligence:
1) Start Due Diligence When All Documents Are Received - When buying large multi-million dollar properties, the margin for error becomes thinner and a small oversight can become a large nightmare. In a competitive market, sellers typically want the highest offer price, with a quick close, and may try to push back against a buyer requesting their due diligence period to start when all of the requested documents are received. This should be a non-starter in order to maximize your opportunity to fully vet the investment and decide whether to move forward or back out.
2) Delegate Due Diligence Tasks - Multifamily investing is a team sport and delegating tasks among team members is one of the best ways to ensure due diligence success. We want to make sure that everyone is accountable and focused on their part of the process. Having to do too many tasks in a short time can lead to costly mistakes and overlooking important aspects that are critical to decision making.
3) Consolidate Property Visits - It is much easier and more efficient if all due diligence team members (inspectors, appraisers, etc) are able to access the property at the same time. Multiple visits may be too intrusive to residents and they may be reluctant to cooperate.
4) Use Technology - Technology has allowed us to be more efficient in our due diligence process. We use cloud-based collaboration tools like Trello and Google Drive to document notes and pictures on-site rather than utilizing pens and paper. Organization and structure is key. Systematizing our due diligence lets us pay more careful attention to the data being collected and the insights we can extract.
5) Understand Lender Requirements - Lenders are typically the biggest partners in all of our deals so it’s important that we understand their requirements on what inspections and reports they need to complete their underwriting. Some lenders may be flexible on what they’re willing to waive, while others may be strict to protect themselves from any downside in the deal. When seeking financing from agency lenders like Fannie Mae or Freddie Mac, there are standard reports that are needed based on the size loan needed. Not understanding their requirements and procedures may lead to the deal-killing delays.
6) Allow For Extra Time - We like to get a head start on due diligence to ensure investment success. Things don’t always happen as planned. We always approach due diligence with a sense of urgency. The faster we can get the information we need to make informed decisions, the more confident we can be about moving forward with the deal. With ample time, we can minimize our unknowns, minimize risk for our investors, and avoid making uninformed or speculative decisions.
In short, the due diligence process is something that we never want to skimp on. Carefully and systematically ensuring the financial feasibility and viability of our potential acquisitions gives us the best chance at realizing our investment thesis and proforma to deliver results for our investors.
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