Cover Your Bases With a Due Diligence Audit
When you’re in the process of purchasing commercial property, it’s important to go through a due diligence process in order to make sure everything is in order before signing final contracts. Our commercial real estate team put together a checklist of items to address and inspections to conduct during a commercial property acquisition.
Why Conduct a Commercial Property Due Diligence Audit?
Oftentimes you need to act fast in the commercial real estate industry, but don’t act too fast without the right safeguards. If you complete a large purchase without due diligence audits and procedures, you could get stuck in a bad situation.
Before purchasing a new property, it’s important to do a thorough audit to make sure each part of the deal advances appropriately and everything about the property meets your expectations. Here’s a brief look at some of the factors the experts on the Katalyst Team consider during a commercial property due diligence audit.
Our Multifamily Due Diligence Checklist
Before finalizing your next multifamily real estate purchase, make sure you look at all relevant documents, contracts, market research, and other resources. The goal of a due diligence audit is to catch any suspicious terms or requirements and to make sure all conditions of the deal are satisfactory and fair.
1. Financial Audit
Take a look at operating statements, including utilities statements, tax statements, and more. Don’t just look at the most recent statements — go back and look at historical information for at least the past year, if not longer. Things like real estate tax bills from previous years can also be helpful in providing insights about the seller’s business history.
2. Market Survey & Competitor Analysis
Take a look at data for other multifamily properties in the area. Checking out the competition helps you to understand how the condition of your potential purchase ranks against similar properties. This analysis can help you decide to raise rents or perform minor updates and renovations in order to be more competitive. It can also help you predict value appreciation for the future.
3. Property Condition & Environmental Inspection
This step is a no-brainer for anyone purchasing a single-family or multifamily property, and it’s an essential part of our multifamily due diligence checklist. Before purchasing a multifamily rental property, walk through every single unit along with any common areas and outbuildings.
Look for any issues or potential problem areas — big or small. This includes anything from minor cosmetic defects to major issues like mold, asbestos, roof condition, or extensive damage. Take note of trouble spots and opportunities for easy updates.
4. Contractor Quotes
After performing inspections and taking note of repair needs, reach out to a few professional contractors. If things need to be repaired or replaced, it’s best to have an expert or two take a look so you can get an idea of what it will cost to fix things or make improvements. Even if you’ve dealt with similar property modifications before, a trained eye will notice something you might not.
5. Tenant & Property Reliability
Take the time to read full lease terms for current tenants to make sure you’re not being roped into any unexpected services or promises once the property is yours. Check rent rolls to see if tenants consistently pay rent, and make a plan for filling vacant units or renovating them, and increasing rent accordingly.
Why Partner With The Katalyst Team for a Due Diligence Audit
This multifamily due diligence checklist is just the tip of the iceberg when it comes to making sure your next purchase goes smoothly and you end up with a great deal. Our real estate investment experts are ready to help with your next commercial property due diligence audit. Reach out today to get started!