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🪜 Due Diligence Checklist

1. Leasing Information and Policies

PHASE 1

Receive and Review:

  • Leasing Policies
  • Current Lease Agreements (Forward to Attorney as well)
  • Current Rent Roll
    • When does each lease expire?
  • Current contracted Rent amounts per unit
  • Current concessions/allowances per unit (Senior Citizen, Employee, Military, etc.)
  • Addtl Rent Income addendums connected to lease (pets, garages, parking, furniture, storage, late fees, NSF fees, Clubhouse Rent, Application Fee, CC convenience fee, Short term lease fee, Administrative Fee, Move-in fee, etc.)
  • Security Deposit Ledger
  • Resident Ledger showing history of rent payments compared to rent due date
  • Compile Phase 1 info into the Master Resident File Audit spreadsheet

PHASE 2

Audit:

  • Compare files on-site to the information supplied in above reports
  • Review the application of each resident
  • Review the credit report of each resident
  • Review the criminal background check of each resident
  • Review the individual leases and rent rates of each resident within the official lease and any addendums

ADDITIONAL VERIFICATIONS

  • Does the physical lease agreed rents match the rent roll?
  • Is there a background, credit, and sex offender check on every resident with supporting documentation?
  • Does the Effective Rental Income on the P&L’s provide by the current owner match the actual bank account deposits?
  • Who are the actual people living in each unit and are they on the lease?
  • Are there any notices out currently for eviction or breach of policy?
  • Do the residents have a pet addendum? What kind of pet and what size?

2. Financial and Operating Reports

Collect:

  • 3 years of certified Actual Financial Statements
  • 3 years of Certified Rent Rolls
  • Most Recent Balance Sheet
  • Year to Date General Ledger
  • Delinquency Report
  • Prepaid Rent Report
  • Month-To-Date Collections Report
  • Current Vacancy Report
  • Security Deposit Report
  • Twelve-month Potential Renter Traffic Report
  • Bank Statements and Reconciliations for the last 12 months
  • All Loan Documentation
  • 3 years of state and federal income tax document filings
  • A signed affidavit attesting that all the above are accurate

3. Other-Income and Expense Items

Collect Verified “Other-Income” Reports:

  • Profit sharing contracts with service companies (i.e. cable)
  • Washer/Dryer Income
  • Pet Rent Income
  • Utility Reimbursement Income
  • Other

Collect Verified Expense Reports:

  • Utility Bills for last 3 years with account numbers
  • All staff names, positions, salaries, and benefits
  • Three-year history/detailed list of renovation and capital improvements, replacement costs, and extraordinary items.
  • List of any and all advertising and marketing contracts
  • Management agreement for the property
  • Three years of Property Tax Information
  • Insurance provider information and premium amount, as well as information on any past losses
  • Three-year work order history for all maintenance and repairs
  • List of recurring and most common maintenance issues
  • List of required homeowners association memberships and dues if any
  • List of personal property to be transferred
  • Office Equipment leases (copiers, computers, etc.)
  • List and cost of supplies purchased in the last twelve months

ADDITIONAL VERIFICATIONS

  • What are the terms of the agreements with service companies?
  • Are they transferrable?
  • Is there automatic renewal clauses?
  • If they are not transferrable what would the new terms be for a new account holder?
  • Were there any up-front incentives for when the service agreement was originally signed? (If so any balance should be pro-rated at closing)

4. Studies

Order Property Condition Reports:

  • Phase 1 and/or 2 Environmental
  • Zoning Reports
  • Title Reports
  • Surveys
  • Bank Appraisals
  • Soil Composition
  • Structural Integrity/Engineering

Market Survey and Feasibility Analysis:

  • What are the market rents in the competitive area for 1BR, 2BR and 3BR?
  • What is the Sqft of each unit type?
  • What are the specials and concessions, if any, being offered in the competitive area?
  • What fees are charged in order to be considered as a tenant?
    • Application fee
    • Background and credit check fee
    • Move-in Fee
    • Short term lease fee
    • Convenience Fees (i.e. credit card payments etc.)
  • What level of finish-out is being offered by the competition in relation to the requested rent (Standard, Standard +, Designer)?
  • What are the standard amenities/ services being offered by the competitors in the competitive area?
  • What assessments (i.e. clubhouse rent) and/or utilities are being paid for by tenants?
  • What are the “Other Income” services/amenities being offered by our competitors and what are the fees?
    • Pets
    • Garages
    • Parking
    • Furniture
    • Storage
    • Other
  • Site visit all competitive area competitors

5. Legal and Construction Documentation

Pre-Close Of Escrow:

  • Legal Description
  • Title Report
  • Seller’s certificate that the property meets all state and local codes
  • Copies of any zoning letters
  • Copies of all utility letters
  • Any pending litigation
  • Certificates of Occupancy
  • Site Plans
  • Copy of original building plans, if any
  • Copies of all warranties, if any

If Property is newly constructed:

  • Change orders (overruns in construction expenses)
  • Construction manager’s report
  • Building/Developer permits
  • General Contractor’s contract
  • Soil and Structural tests
  • Permits
  • Mechanical, plumbing, electrical approvals
  • Fire Inspections
  • City Approvals
  • Truss Calculations
  • Safety data sheet for materials used in construction
  • Operating Manuals
  • Service contracts and agreements (landscaping, pest control, and so on)
  • Warranties

6. Exterior/Common Area Inspections and Bids

Categories:

  • Plumbing
  • Electrical
  • Roofs
  • Paint and Siding
  • Landscaping
  • Asphalt and concrete work
  • Heating and air-conditioning units
  • Pest problems
  • Fire protection systems
  • Material and labor cost per unit for rehab/update

NOTE: Obtain multiple bids for each required category above.

7. Interior Inspections

  • Walk every unit and complete a “Vacant Unit Condition Report” for each

NOTE: Obtain multiple bids for each required category above.

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