Are you planning on closing on a multifamily deal? If so, before you say yes to closing on a great multifamily deal there are several things that you should do to ensure that your best interests are protected as an investor.
In this article, we will provide you with several things that you should do before closing a multifamily deal.
Things to Do Before Closing on A Multifamily Deal
Assemble a team – Although most multifamily investors are conditioned to be “Lone Rangers” who want to do everything by themselves, the reality is that true success in multifamily comes with hiring a team who can help you with every aspect of the deal.
You should be hiring a team to help you with tax issues, legal, leasing, construction, property management and anything else that you need assistant with to close and then professionally manage every aspect of your multifamily property.
Deep dive into macroeconomics – During the process of doing your due diligence when investigating a real estate investment, you should also do a deep dive into macroeconomics. Specifically, you should be finding out what’s happening on the local level where the property is located. It’s also important to verify the current market cycle and see if the asset type is possibly overheated or expensive.
Find out what’s happening with the local market – If you live in Miami and want to invest in Dallas, you can take your friends word for it that the DFW rental market is hot right now, you should always do your due diligence and investigate the local rental market to verify what’s really happening there and if it’s a good time to rent or not.
Who did the inspection? This is an important question to ask before buying a multifamily property because the owner may have had their friend or an unlicensed profession inspect the property. It’s best to verify the credentials of the inspector to confirm that they are qualified and will have found out about any issues that the property may have.
What is your exit strategy? When buying a multifamily investment property, you should always start out with the end in mind and be thinking about when you intend on selling the property. If you’re working with partners, you should communicate with hem what your ideal exit strategy is and also let them know what you would like to do if the market conditions favor holding.
Don’t take the sellers word for it – Every seller has their own reasons for selling a multifamily property so you should never just take the sellers word for why they are selling. Do your own analysis and research the property thoroughly including how much reserves may be built into the property or what capital expenditures would be during a hold period. The data is a critical part that should be reviewed before buying any multifamily property.
Learn more about the current leases and tenants – The owner could be painting a “rosy” picture about the properties that are currently under lease but once again, you can’t take their word for it. You should visit the property in person, walk every unit and talk to each tenant to find out how they feel about living there and if they are inclined to renew once their lease expires. Lease expirations can be responsible for cash crunches so it’s vital to verify how staggered out they will be before purchasing a multifamily property.
You have to think about the loan – You may have excellent credit and stock value but what if you don’t qualify? Each lender has different loan requirements so it’s best to consider all scenarios, including if you need to bring on one or more partners so that you don’t lose the deal.
Don’t wait to find the right property management company – Last of all, another thing to think about before closing a multifamily deal is hiring a great property management company. This is essential because you want to hire a company that can do better than the current owner or company that’s managing the investment property.
Specifically, you should have a property management company that you’re thinking about working with actually walk the property and provide you with their specific plan for managing it. This is important because this will also help you to find out if their CAPEX estimates fall in line with the data that you received from the seller and inspection.
We’ve covered a lot of information in recent posts on due diligence, and for good reason. This is the most important step when buying a multifamily property that can save you time, money and countless hours of frustration.
Always take the time to do proper due diligence and you will invest in a great multifamily property every time.