Anyone who is looking into buying a multi-family property needs to make sure you go over that property with a fine toothed comb before signing on the dotted line to purchase it. In this article we will be discussing 7 things to look for to make sure you are not getting a whole bunch of problems along with your purchase.
1. Check The 12 Month Operating Statement.
When taking on a multi-family property you need to make sure to look at the track record of the building for the last 12 months to see how profitable it has been, how many vacancies its had, and the overall performance of the building. Checking the 12 month operating statement will give you an overall glimpse of what you are looking at if you were to own that property.
2. Always Check The Rent Roll.
The rent roll is a schedule of all of the rents for the building, how much each tenant is to pay per month, if they are current with their rent and the total you have received. Most of the time these rent rolls will give you information on each of the tenants pertaining to how long their lease is and if they are close to having to renew their contract. You need to make sure that this rent roll matches the hard copies of the leases you have on file.
3. Check Property Taxes.
Always check the property taxes on any purchase you are wanting to make to see if there are any back taxes owed on the property, the date they were paid, and how much the taxes may go up after you purchase the property. All of this information could give you insight into why the owner is wanting to sell the property.
4. Check All Leases.
Make sure to review each and every lease for all the tenants. I know this sounds like a tedious process and it can be, but you need to make sure that no tenant is receiving free rent and that there is no lease that leaves you exposed to a lawsuit of any kind. Also, check all the lease agreements to see what kinds of services the previous owners offered that you will now have to continue providing if you were to take over the property. Did they offer cable, internet, trash removal or lawn care? If so, you have to continue providing those services for the duration of the contract. Otherwise it would be considered a breach of contract. Like I said, this can be a pain but you want to make sure everything is legitimate and in order so that there is less risk on you if you decide to purchase the property.
5. Make Sure To Inspect Each Unit.
A walk through of each apartment should be done before any purchase is made. Along with inspecting each common area, if there are laundry facilities on site, the utilities, and the outside of the building to make sure it is all in operating order. You should always make sure to bring a professional along with you that way if there are any major problems they will be able to point them out for you and you can request the owner to fix them before you purchase the property. If the inspector finds any issues with the property, make sure to get multiple quotes from contractors on how much it will be to cover the cost that way you can negotiate that into the price of have the owner fix it before the sale.
6. Make Sure You Know The Market.
Always make sure you have done your research of the market in the area before going into a deal. Make sure that population and jobs are on the rise in the area, crime rates are low, and the rate of unemployment is well below the national average. Make sure the property is in a well rounded city, that it doesn’t rely on just one or two industries or employers. Having a property in a city with only one or two industries could cause future problems if those companies were to fall on hard times.
7. Are There Pending Lawsuits?
Make sure you check to see if there are any pending lawsuits on the property as this can be a common issue even if the building is on the newer side. Are there a lot of tenant complaints?
Is the integrity of the structure compromised in any way? Did the old owners have bad management skills? If there are lawsuits, who is responsible for the payout and will a judgment against the property impact the selling or purchasing of the property? It is always better in these situations to be over prepared for anything rather than be under prepared.
If you are thirsty for even more property investment tips, then please check out our article on how to add value to apartment buildings.