Noah has been looking at investing into multifamily real estate as a passive investor
Noah’s potential sponsors tell him that they currently have a property in due diligence.
Noah asks his sponsor Mattie what to diligence means.
Mattie explains that due diligence is the period of time in between when you get an offer accepted between when you actually close on a property.
Mattie explains that the due diligence period is an important time for the sponsors to verify that all aspects of the property are as they see and dive
into every aspect of its condition.
This means that the sponsorship team will walk through every single unit of the complex to assess the state of the property.
Noah asks what all needs to be checked during the due diligence process.
Mattie explains that the due diligence process will vary between properties but typically a sponsor will cross-check the property’s income statements tax returns rent roles, bank statements, delinquencies, expense on the last three months of utilities, vendor contracts, property tax, current insurance, environmental report, capex list, permits and the property’s crime reports.
All of these documents allow for the sponsor to verify the state of the property and ensure that their business plan can take place effectively that way investors can receive their expected return.
Noah is happy to understand the due diligence period and how it is an essential element to a successful commercial real estate transaction.