Professional apartment due diligence can quickly pay for itself tenfold. Finding hidden value as well as hidden liabilities brings truth to light when considering an apartment property investment or an apartment portfolio purchase. The key to success in professional apartment due diligence is knowing what to look for and how to uncover it, even when things are well hidden. Read on to learn when to hold ‘em, when to fold ‘em and when to call in the apartment due diligence experts.
Know Your Neighborhoods and Apartment Submarkets Intimately
Every apartment submarket has a unique story. What new commercial developments have been done in recent years in the area and at what grade level near the property? Do these affect drainage?
What do crime statistic trends look like over the past 1-3 years? What are area income demographics? Are they stagnant or rising? Are there ample support services including grocery stores, schools, and restaurants nearby? What’s the lay of the land? Is there a cleverly disguised landfill on the next block over?
Know Your Exit Strategy Going In and Be Flexible Like Gumby
Exit strategies determine the trajectory of successfully managed apartment assets. What we do with a 3-5 year hold is very different than what we do with a 15-year hold. Markets and submarkets also change. Keeping your finger on the pulse of the submarket and being able to adapt as circumstances change leads to consistent returns over time. Apartment ownership is an active investment. It’s not a set it and forget it business. Whether you are an active owner or choose to hire a professional property management company, either way, being proactive, intuitive, knowledgeable and diligent can increase returns substantially over time.
Drilling Down at the Property Level
What is covered at the property level in a professional due diligence audit? Read through and see if you think knowing this information before sitting down at the closing table can be beneficial.
- Lease file audits and rent rolls – show me the money. Is cash flow matching the books? Are expenses justified? Are rents/fees collected on time and accounted for?
- Taxes/insurance – are taxes justified and current? Is insurance accurate or saturated? How many claims have been filed and what types of claims were they?
- Construction deficiencies – are there hidden liabilities? Foundation issues? Plumbing inspection (this can be an eye opener). Moisture penetration? Good lighting? Risk/liability assessments?
- Roof, boiler, siding, drainage. All can be big-ticket items. Do you know where to look for hidden clues?
- What if the property collects pet rents, but after a physical survey and comparison it was found that only 17% of pets were registered? (Yes, found during due diligence).
- Wouldn’t it be a good thing to know prior to closing that current ownership filled the property with unqualified residents? This is found during a thorough lease file audit and analysis.
Michael Knight, Vice President of Operations for Better World Properties LLC explains, “Every deal can be a good deal if you’re paying the correct price. Key words: Correct price. Sometimes a deal needs to be re-evaluated once professional due diligence brings truth to light.”
Getting Buggy
Bugs can be pesky problem. Knowing what to look for can save a potential buyer a lot of headaches and a ton of money. Termites, bed bugs, roach infestations. Yes, these do happen, even at Class A properties. Professional due diligence can help sleuth these buggy issues out prior to your signing on the dotted line at closing.
Hire the Experts to Do What They Do Best
Professional multifamily due diligence is a learned skill developed over years with boots on the ground. A professional apartment due diligence team of 3-5 people can walk 60-75 units per day. Two additional skilled people can scour 150 lease files per day and review rent rolls to make sure numbers in the offering are accurate.
Professional due diligence pays for itself tenfold. Finding hidden value as well as hidden liabilities can quickly bring truth to light.
Investing in Texas Apartments
Are you eyeing potential apartment deals? Do you wish to add Texas apartment properties to your multifamily portfolio or eyeing purchases in another state? The apartment due diligence team at Better World Properties LLC has over 100 years of combined experience and has performed due diligence on thousands of apartment units with boots on the ground. Click here to learn more about all of our apartment management, apartment financing solutions and apartment operations services offered under one roof.
The team at the Better World Companies are enthusiastic and active members in the Houston Apartment Association, the Texas Apartment Association and the National Apartment Association. The Better World team spends many hours each year training, teaching, mentoring and helping to guide legislation to make it a better world for apartment owners and apartment investors, apartment managers, apartment residents and all who are a part of the multifamily industry.
Don’t risk your next deal to chance. Hire the experts. You might not only save money in the long run, but you may actually make money at the closing table. Now, that is a sweet Texas deal.
Want to chat some more? Give us a call. Better yet, come visit. We’ll take you on a tour of the Lone Star state. We love nothing better than to talk apartments.
Email info@betterworldllc.com or call (713) 559-6975.