15 Key Items For Any
Multifamily Due Diligence Checklist

If you’ve been in property management for a while, you’ve probably heard your fair share of due diligence horror stories. It’s easy to understand why due diligence inspections are regarded as one of the most crucial considerations when buying a multifamily property, from finding faulty pipes in apartments to detecting a community-wide rat infestation that’s leaving a trail of ruin in its wake. Due diligence inspections allow you to ensure that you are aware of all aspects of the property and are appropriately prepared prior to purchasing.

The ultimate due diligence multifamily report assesses asset quality, compares active leases to one another, identifies required repairs, and reviews expenditures. Because of inadequate preparation, a lack of time, human error, and paper-based processes, all of this can be neglected. It’s critical to streamline your checklist and make sure it’s robust enough to help you with your due diligence inspection. Missing a mistake during the inspection period could cost you hundreds of thousands of dollars.

We recommend that you add the following items in your next due diligence report!

1. Reduce inspection time by inspecting using a smartphone or smart device.

Performing your inspection on paper using a pen and paper is antiquated and time-consuming. Make use of technology to make your procedure more efficient. Property inspection software allows your team to use their smartphone or device to capture videos, take photos, document property conditions, and do the complete inspection (from start to finish).

2. Ensure that the condition of each item inspected is determined by the inspection checklist.

Before you begin the different inspections required to complete your due diligence, double-check that your inspection checklists examine the state of everything you’re looking at, from light bulbs to door knobs. Make sure your checklist leaves no stone unturned.

3. Inspect the mechanical system.

A mechanical inspection is when you look at the state of the building’s systems for your renters. Plumbing, electrical, heating, and air conditioning are all examples of these systems. We recommend having the main systems inspected by certified specialists. These systems are expensive to replace, and if they break down and need to be fixed, they can quickly deplete your whole maintenance budget.

4. Get to know your surroundings and the neighborhood.

Examine the surrounding area of the property. It will be far more difficult to market and fill a vacancy in an unappealing region, such as an industrial compound or an overcrowded low-income neighborhood. Examine the policies in place, as well as the rates offered by your competitors and the local market.

5. Report on financial auditing.

A financial audit report contains the detailed findings of an examination conducted by a third-party real estate consulting firm. They provide a thorough examination of the asset’s operational history, as well as a breakdown of the various components of the building’s operating expenses and income.

6. Perform property market analysis.

The property market study is a comprehensive comparison and contrast analysis of the market in which your home is located. Depending on who is performing the research, elements such as rent price, unit type, occupancy rate, building age, historical stats, facilities, and more are compared and rated.
A property market report’s findings could be utilized to confirm your rental rates.

7. Take pictures of all of the property's assets.

The excellent, the bad, and the truly repulsive. Take photos of everything! By photographing everything, you can be sure that everything you found during your due diligence investigation is supported by evidence in your reports.

Furthermore, discovering any damage that the seller failed to report will put you in a much stronger position when it comes to negotiating a deal.

8. Audit the leases.

The lease audit is a routine examination of the leases, which includes the reported income and spending statistics, billing procedures, and lease language. Your property management company will typically conduct the lease audit.

A lease audit’s main goal is to ensure that billing is correct and in accordance with the lease terms.

9. Don't leave a single stone unturned!

“Do I need to walk into every single unit when I’m completing my due diligence?” is a common question when discussing due diligence. Yes, it is correct. Yes, without a doubt. It’s critical that you walk through each unit and capture the condition of each one.

10. Complete all contract obligations.

Reviewing service contracts is an important part of your due diligence. Contracts for services performed on your property are known as service contracts. Lawn mowing, pool cleaning, window cleaning, trash pickup, and so on are examples of services. Service contracts are frequently maintained even after a change of ownership, so double-check your property’s policies.

11. Review utilities.

It’s a good idea to double-check utility bills that you’ll be accountable for as part of your due diligence. Water, gas, and electricity are examples of such items.

12. Determine the cost of renovations.

You must assess the projected return on investment if you want to perform major improvements in order to maintain a higher rent rate.

13. Ensure the safety of your renters.

You should keep copies of insurance certificates for all fire, liability, and other policies that the present owner of the property maintains during your due diligence inspections.

14. Request materials for marketing.

Request that the owner give you a copy of all marketing materials and efforts; the more you know about what works and what doesn’t when selling to your target market, the better!

15. Obtain occupation certificate.

Obtain a copy of the current Certificate of Occupancy for each of the building(s) on the Property, as well as copies of all additional licenses and building permits required by relevant legislation in order to own, operate, manage, and maintain the Property.

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MarketSpace Capital, LLC is a Houston, Texas-based private equity real estate development firm focused on ground up developments and value-add investments throughout the United States.

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Disclaimer: *For sold properties, actual sales price is reported. For active investments, the Estimated Current Value is based on the Managing Member’s estimate of current value. Recent acquisitions are generally valued at the acquisition price. Values may be internally prepared. This web-page/website is for informational purposes only and is qualified in its entirety by reference to the Confidential Private Placement Memorandum (as modified or supplemented from time to time, the “Memorandum”) of any offering of MarketSpace Capital.