On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate acquisitions & dispositions on Friday, July 27, 2018.
Buying a multifamily property can be a fantastic investment — but only if you make sure to perform your due diligence first. That’s the only way to make certain that your money is wisely managed.
Don’t get sidetracked by the excitement of the venture. Something that seems like a great deal may not be all that special once you dig deeper. Here’s where you need to start your due diligence on a multifamily property:
1. Interior unit inspections
You need a thorough inspection of each rental unit, including appliances, floors, bathroom fixtures and ceilings to check for needed repairs or replacements.
2. Environmental hazards
A detailed environmental inspection should include information on any asbestos or lead paint on the premises. Hidden hazards can make getting financing difficult and expose you to litigation.
3. Tenant information
What are the demographics of your tenants? Can you expect long-term leases to continue? You also need copies of all of the leases in order to understand exactly what agreements have been made. A schedule of rents is also important so that you know how much rent is due — and how good the tenants are at paying. That helps you avoid hidden issues that could lead to evictions and a lot of expense for you later on.
4. Market analysis
Look into what is happening with the economy in the area, the real estate taxes, the population growth and any big changes in demographics. Who are the major employers in the area? If one major company employs most of the tenants, your economic health is tied to the company’s health once you invest. Make sure that’s something you’re willing to do.
The last thing you want to do is purchase someone else’s legal headache. Make sure that there’s no litigation pending regarding safety, structural problems or management issues. If there is, you need to protect yourself against liability before you agree to buy.
Remember, you can’t trust the seller to warn you about any risks you are taking with a commercial property acquisition. It’s always, “Buyer beware!”
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