Due Diligence Checklist for Multifamily Acquisition

If you’re looking to invest in a multifamily property in this market, it’s just a fact: Expect to analyze and make offers on multiple properties to find the right fit.

So, having a system in place to do the necessary due diligence will help you not only move faster but also make fewer mistakes. Our multifamily due diligence checklist is your starting point; click below to download now. This is the curated list our commercial team leans on as we help buyers analyze potential multifamily acquisitions, but can serve both buyers and sellers.

We’ve broken the checklist down into six sections: Financial Audit, Rent Roll Audit, Building Inspection, Market Analysis, Legal Audit, and Marketing Audit.

In practice, this checklist would typically be used by a buyer who just put a property under contract. So, using information provided by a seller on an offering memorandum or marketing package, a buyer has run those details through their underwriting model, determined that this deal makes sense, submitted a letter of intent or purchase and sale agreement, and now has the property under contract. At that point, our commercial team uses this checklist to make sure we haven’t forgotten any important items as we move toward closing.

Financial Audit

We review two years of income statements, vendor contracts, and various invoices to confirm the numbers we put together before submitting our offer. Quite often, the seller’s financials are inflated or incorrect, and we are looking not only for items that are wrong but line items that have been left off. For example, often the seller performs maintenance or landscaping, or manages the property, and these expenses need to be accounted for.

Rent Roll Audit

Putting a solid rent roll together means reviewing all leases, understanding what delinquencies look like, and making sure we know what prepaid rents and concessions will survive closing. Some lenders require estoppels—and it is not a bad idea to add this to your workflow. Many sellers won’t be familiar with estoppels, and if you plan on using them, you should add them to the purchase and sale agreement as a special stipulation, since they are quite disruptive to tenants and most sellers will not allow you to go door to door to talk to each tenant. See this article on estoppels for a template and background on how to use them.

We will also perform a rent study to understand what competing comparable properties are renting for, which will help you project where your rents should be. Click here for an article on rent studies and how to perform them.

The final step is to interview potential property management companies and select one that can help advise you on rent rates and the local market.

Building Inspection

It’s important to thoroughly understand the condition of the property and future maintenance expenses. Roofs, electrical systems, plumbing systems and HVAC systems should all be included. A thorough review of the plat and deed should be performed to understand any easements across the property, the locations of water and sewer lines, and any potential boundary issues. Your lender may require you to have a Phase I environmental report and an appraisal—these items can be time intensive, so make sure they are ordered early in the process. Some municipalities are very strict when it comes to certificates of occupancy, permits and inspections, so ask for copies of past inspections, along with permits for prior work performed.

Market Analysis

We could write a book on market analysis, but at a high-level, you just want to make sure you understand the neighborhood and general trends in the market. Are things getting better or worse in this area? Have there been new job announcements in the area?

Legal Audit

We review insurance policies and exceptions, as well as five years’ worth of loss runs. It’s a good idea to ask if there are any unrecorded agreements affecting the property, such as neighbors driving across the property or using the dumpster, for example. The seller should disclose any potential lawsuits facing the property at this point. Also, we review the community rules, the lease form itself and the current application form. There may be fair housing issues or blatant errors in the forms, and these should be considered and corrected immediately.

Marketing Audit

We collect as much information as we can from the seller regarding their current marketing package. This includes floorplans, brochures, logos, and a review of their website and current management system. Often, we find a wide gap between the current rents and what the rent study suggests the market rents should be, and this could be attributed to lack of marketing. You will also want to review the property’s website and confirm that the domain and branding are a part of the sale and included in the contract.

Download Due Diligence Checklist HERE

We encourage you to use the checklist on potential deals you’re working on, but if you would like an advisor to help you in the acquisition process from start to finish, email us to schedule a time to discuss a buyer representation assignment with one of our brokers.

That’s it! Please also let us know how we can improve our process in the comments below. Are there any items we’ve left off the checklist? What are the biggest mistakes you’ve made in the past that could have been solved with one of these bullet points?


Copyright (c)2021 | This post originally appeared in Jonathan Aceves’s blog and is republished with permission.

Estoppels: Why Investors Should Use Them


Last year, my partners and I closed on a portfolio of rental properties. The owner assured us that there were no leases or security deposits. After we closed, we discovered that there were in fact leases and deposits, and he refused to refund them.

We decided it would be cheaper to eat the difference than to pursue him in court, but the entire affair could have been avoided by using an estoppel.

What are estoppels?

Estoppels are usually short documents used to confirm lease details. They are a “signed statement by a party certifying for another’s benefit that certain facts are correct, as that a lease exists, that there are no defaults, and that rent is paid to a certain date. A party’s delivery of this statement estops that party from later claiming a different state of facts.” (Black’s Law Dictionary, 572, 7th Ed., 1999)

Estoppels usually confirm basic lease details such as:

  • The rental rate
  • Commencement and expiration date of the lease
  • That the rent hasn’t been prepaid
  • That the lease hasn’t been modified
  • That there are no defaults on either side

Why would I want to use an estoppel?

Often estoppels are required by a lender, but as an individual investor, you may want to include them in situations where the leases are unclear or if you’re unsure of the validity of the financial statements. Estoppels also ensure that the owner hasn’t collected prepaid rent or pocketed the tenant’s security deposits.

How do I use an estoppel?

You will likely want to add a clause to your contract requiring the seller to collect estoppels prior to close or allowing you to collect them from tenants prior to close.

This can be quite problematic on a larger property, as many tenants may pay electronically and not even interact with the owner or property manager on a regular basis. A simple way to execute estoppels may be for the owner to fill out the pertinent details and have them docusigned by the tenants or completed by as many tenants as possible during a property inspection.

Download Free Estoppel Agreement

Here is a simple, one-page generic version you can use. Feel free to make changes to it as needed. We hope it saves you time and money on an upcoming deal!


Copyright (c)2021 | This post originally appeared in Jonathan Aceves’s blog and is republished with permission.

Need to Figure Out Market Rents? Here’s How

If you’re considering a real estate investment, you’re probably asking yourself what the market rents are for a given property. So, how do you figure out the rental projections for a given market?

A rent study should answer that question and give you the tools you need to make an educated guess of where rents will go.

What is a rent study?

A rent study is a spreadsheet of rent comps, either asking rents or effective rents, with some basic information such as square footage and class of complex. For simplicity, multifamily rents are usually divided into “A”, “B”, and “C” class properties, and square footages can generally be found on Apartments.com or Apartmentfinder.com.

How do I conduct a rent study?

To start, determine the market or trade area that you want to study, and make a spreadsheet of various apartment complexes in the trade area. Add columns for beds/baths, SF, rent, and class of complex. You may also want to have a column for amenities, such as clubhouses, pools, and walking trails.

Now go online and see what are the asking rates for each of these units. With square footages, sometimes various websites will give you a range—I usually take the average of the two numbers in the range. Be wary of outliers! Sometimes “executive” or furnished units will throw off your numbers, but be persistent.

You can also conduct the rent study by phone. If you’re calling, you will still want to put your spreadsheet together and populate it with as much online information as possible. I always recommend being honest: Tell property managers you are conducting a rent study, and offer to send them a copy when it’s finished. (You should do this, not only to avoid being a liar, but so they will help you with comps next time.)

I usually confirm rents and basic rental details—and ask them anecdotally how many calls and showings they are receiving. How strong is demand? You might make a column where you note that although a given complex is asking $1.50/SF for its one-bedroom units, the manager gets many more calls for two bedrooms than for one. That is useful!

Once you have a meaningful compilation of rent comps, it’s time to turn it into a rent curve. I usually select the rent/SF and SF of the units in a given class (A, B, or C), and add a logarithmic trendline to those numbers. Then, I project forward a few hundred points and backward a few hundred points. This will give you a nice smooth curve that looks suspiciously like the ones from economics class (these are demand curves after all). Now you can match the units in question with their class peers on the graph, and use the information collected to estimate the market rents.

Congrats! Now you have a completed spreadsheet that looks like the example here:  Download the Example Apartment Rent Study Here

And instead of guessing, you can base your projections on hard numbers. You may also be able to find some real anomalies in the market—undermarket rents—and some diamonds in rough. Good luck!

Copyright (c)2020 This post originally appeared in Jonathan Aceves’s blog and is republished with permission.