Multifamily Due Diligence Checklist
A structured due diligence process is the difference between a profitable acquisition and a costly mistake. This checklist covers the three phases of multifamily due diligence, from initial screening through closing.
Phase 1: Pre-LOI Screening
- Review the offering memorandum. Verify unit count, asking price, stated NOI, and cap rate. Compare broker pro forma to T12 actuals.
- Run initial underwriting. Calculate cap rate, DSCR, cash-on-cash return, and price per unit using actual (not projected) income.
- Check market comps. Compare price per unit and cap rate to recent sales of similar properties within the submarket.
- Assess the rent roll. Look at current rents vs. market rents, lease expiration schedule, and tenant concentration risk.
- Evaluate the location. Drive the neighborhood, check crime data, school ratings, employment centers, and planned development.
Phase 2: Under Contract
- Request full T12 and rent roll. Get month-by-month P&L for the trailing 12 months plus current rent roll with lease dates and terms.
- Order property inspection. Hire a qualified inspector to evaluate roof, HVAC, plumbing, electrical, foundation, and unit interiors.
- Review all leases. Check for below-market rents, rent concessions, lease violations, or tenants on month-to-month terms.
- Obtain insurance quotes. Get actual quotes from 2-3 carriers rather than relying on the seller's current premium, especially in high-risk areas.
- Verify property tax basis. Contact the assessor's office to confirm the assessed value and estimate the post-sale reassessment.
- Review utility bills. Request 12 months of utility bills to verify the T12 figures and identify which utilities are owner-paid vs. tenant-paid.
- Confirm capital expenditure needs. Get contractor bids for any deferred maintenance identified during inspection. Build a 5-year capex budget.
Phase 3: Pre-Closing
- Finalize loan terms. Lock the interest rate, confirm loan amount, and review all lender conditions and covenants.
- Review title and survey. Clear any title exceptions, easements, or encroachments that could affect property value or operations.
- Complete environmental review. Review Phase I ESA results. Order Phase II if any recognized environmental conditions are flagged.
- Set up property management. Execute the management agreement, establish bank accounts, and prepare tenant transition notices.
- Verify estoppel certificates. Collect signed estoppel certificates from tenants confirming rent amounts, deposits, and lease terms.
Dealyze handles the financial analysis in Phase 1. Upload an OM or T12 and get cap rate, DSCR, cash-on-cash, IRR, and a Go/No-Go verdict in under a minute.
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