6 Keys To Performing Stellar Multifamily Due Diligence

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.

6 Keys to 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. Making sure that everyone is accountable and focused on their part of the process prevents 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 teams to be more efficient in their due diligence process. Cloud-based collaboration tools like Trello and Google Drive help document notes and pictures on-site. Organization and structure are key. Systematizing due diligence allows closer attention to data collection and insights.

5) Understand Lender Requirements

Lenders are typically the biggest partners in all deals so it's important to 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 needed based on the size loan required. Not understanding their requirements and procedures may lead to deal-killing delays.

6) Allow For Extra Time

Getting a head start on due diligence ensures investment success. Things don't always happen as planned. With ample time, you can minimize unknowns, reduce risk for investors, and avoid making uninformed or speculative decisions. The faster you can get the information needed to make informed decisions, the more confident you can be about moving forward with the deal.

Conclusion

The due diligence process is something that should never be compromised. Carefully and systematically ensuring the financial feasibility and viability of potential acquisitions provides the best chance at realizing the investment thesis and proforma to deliver results for investors.