Gotchas in Due Diligence/ Acquisition of Multi-Family Properties

Note: I will expand and keep refining this post on a periodic basis so it's up to date

1) Low Income and Bad Demographics Mix
2) High Crime
3) Rent Roll Occupancy and Physical Occupancy don't match
4) Income in T12 and Actual Bank statements don't match
5) Flat Roofs
6) Window ACs or lack of Central HVAC
7) Wood construction issues like wood rot, decks not in good condition, WDO (Wood Destroying Organisms), Termite Damage, Stucco/ Siding issues. Overall be really careful with old wood construction. Prefer concrete block or masonry structures.
8) Water Damage inside units (Use Infrared Cameras to find out during unit walks)
9) Foundation Issues
10) Polybutylene Piping
11) Cast Iron Sewer Lines
12) Water leaks (See Pattern of water bills from past few months/ years)
13) Old Electrical Panels
14) Ignoring age of Water Heaters/ HVAC's/ Roofs while computing CapEx
15) Radon Gas
16) Retaining Walls
17) Water Intrusion
18) Railings
19) Mold
20) Asbestos and Lead Based Paint
21) Gutters, Down sprouts
22) Tree Trimming
23) They just fill in with people by giving concessions before selling. Tenants are not vetted properly and bad quality. See if there are many leases in last 3 months.
24) Always ask for seller story (We passed on several deals just because the story is not right)
25) Get Insurance Loss Runs to see any recent claims
26) Never assume existing LLC - Always do new entity
27) Go to FEMA website and verify if the property is in Flood Zone
28) Self direct IRA investments take time. So work on them first and get funds 2 weeks before closing

Thanks
Rama Krishna
​rama@zovest.com

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