Good news – you are ready to put your first multifamily under contract. Scaling your investment business requires expanding your due diligence process. Often the best deals come from tired property owners who have become lax in their business and property management skills. Come equipped with a well-prepared set of questions and a plan of how you will integrate this business into your portfolio.
Three major areas that need your attention both in the contract negotiation and the transition period to closing are, the purchase of the real estate, the business operations and the property management. Develop a comprehensive timeline and outline of discussion points between yourself and the seller and keep concise notes. The easier you make this transition for the seller the better.
The real estate portion of this transaction is the easiest. Exercise due diligence when reviewing the zoning in the area that the property is located. Potential changes in zoning may be the reason the sellers are ready to sell. Schedule a thorough property inspection. The inspector will not only find any blatant issues but will also help you prepare a more accurate personal property inventory as well as a differed maintenance list.
The second consideration is the business operations. Often the weary landlord/owner has become lenient on maintaining up-to-date leases and the collection of security deposits. Ask for copies of leases as well as a list of the rent rolls for the last three years. Verify this information with their schedule E. Review the stated deposits and make note of the amount for your final transfer at closing. Discuss the specifics of rents, such as when and how they are paid. Determine how prorated rents will be handled at closing. Ask the seller to review the keys for all the apartments and give you a master set as well.
Following your inspection, make an appointment to discuss any repairs the owner has yet to finish as well as those promised to tenants. Discuss utility services or maintenance contracts (pest control, lawn mowing, or trash service) that will need to be set up prior to closing. Ask the seller if there are any outstanding legal proceedings or insurance claims. Tact and professionalism are of the utmost here.
Finally take time to discuss the property management process. Work together to develop an informative introduction that will outline the transition. Normally the present landlord has had a personal relationship with them and can give you insight into each tenant.
Overall, maintain a professional respect for the seller. He/she has put much of their energy in the property and will be relieved to pass it on to you. By maintaining this relationship, they may continue to help you in the future.
