Flip and Danny walk through their due diligence checklist for a 48-unit apartment deal. Once the LOI is accepted, they request rent rolls, leases, operating statements, utility bills, engineering reports, and litigation history to surface negotiable costs and avoid surprises after closing. Their property manager Della handles document collection and verification.
Hey, everybody. Flip and Danny here, founders of the Freedom Real Estate Group family of companies. And welcome to our podcast, which is.
Called Freedom through Passive Income.
That's right. And welcome to another episode. And this episode is another one of our 48 unit episodes and this one is on due diligence.
Yes. So we did one yesterday and we talked about the fact that these podcasts are meant to share information and education and mindset and all kinds of different things. They're also daily because it's meant to bring you on the journey with us. So sometimes when we're able to teach you something and have it apply to something we're working on right now, it's that much more effective because you get to see it in the works. So today or yesterday, we talked about having our property manager interview.
Yes.
And everything that happened in that conversation.
That was a long episode.
That is going to happen when we're trying to teach you something and share, like, how we did it. It's going to get a little bit longer than our typical 8 minute, 6 minute on average podcast. But today we're talking about due diligence. This is a checklist that we have that whenever we're buying a property and we've actually submitted the loi, it's been accepted, we've gone to contract. This is when we break open the due diligence checklist and we start going chick, chick, chick, chick, chick. We go through every single step and either say it's not applicable for this property or we make sure that we get it done. And so this is very. This is something we talked about yesterday, that our property, the property manager for the other unit, and we've been asking her for a lot of documents. Della has. Della has been a superstar. This is her first deal with FCI that she's gotten and she's learning multifamily. So she's learning all the things that has to happen. And she's just been a rock star getting all of this information. In fact, we're using the sheets that the checklist that we duplicated for this particular one. And she would cross things off, she would add links to where the files are. She would answer the questions, if it's a question. So shout out to Della there.
And just to let you know that this checklist was actually empty. There was nothing on it. And so when we started our first apartment, and we keep asking, adding more things to it. So it's a living document now. It's three pages. And I'm sure next time it'll be four Pages. So there's always something that we're going to miss or find out about and we're like, oh, we need to add that to the due diligence.
Exactly. So something our property manager. Not our property, the property manager for the 48 unit that we're buying said on the call yesterday was just like, you guys are the most thorough people we have ever worked with. Nobody asked for all this information. And I think that's really, really important to note. Number one, you take notes on what the things that we're going to be talking about here in this episode. Because it's really important. If you're buying something or if you're vetting another sponsor or somebody that you're working with, you want to know that they're actually doing what they should be doing so they don't, you know, learn something. Six months down the road, that becomes a big issue that you would then have to deal with. You want to deal with it up front and potentially, if it's going to be a cost item, you want to be able to negotiate it while it's still under contract and not already closed.
And this is also very key to thanking our masterminds, because we get a lot of this from a mastermind.
Yes, we do.
And one thing that this due diligence report will, it will reveal who are the real people in these. Because if you ask these questions and they're like, I don't know. Yeah, well, then we don't want to work with you.
That's right. That's why experience matters. Right. When we're vetting other operators for us to work with, we're asking them about their experience. Yeah. If you've had, say, 10 years of experience in real estate, you very likely have checklists like these, because how did you get this far without being that organized? So anyways, we're going to go through just a bunch of them. We might not hit every single one because it is supposed to be a short podcast, but.
Yeah, welcome.
I'll let you start with some of the things that Della's got crossed off here.
Yeah. So rent roll for the last six months at least. Copy of all current leases and contracts, service contracts, operating statements, occupancy reports for the last 12 months, utility, insurance, tax bills, you know, any litigation against the unit or against the seller, but mainly against the property. Engineering, soil, seismic appraisal, environmental. Those are all very good. A lot of people will overlook that. Zoning, making sure that everything is still, you know, going in the right direction. Capital improvements, any existing title policy Or a survey of the property, monthly operating income and expenses for the last three years. If you can get the last three years, then you're dealing with somebody very incredible. We couldn't even get three months out of our last year.
Yeah, that's true.
So you know, just in copies of all existing leases. That's. I mean, as silly as you might think, that's not always something that we get.
Yes. Yeah, especially the last one. Right. There weren't even leases on some of them. I will back up and just tell you. So we had like an hour long meeting with Della yesterday to go through this list, see what questions she had and there were some questions that came up, such as list of the recent capital improvements, any property condition reports which may have been completed by the seller in the past three years. So when she asked about this and why that was something that we needed, I said, well, because you always want to trust but verify, Right. So if he says, I replace 12H vac units, I replaced this, I replaced this roof. And you're negotiating based on that information. When you walk the property, it's a good idea to double check he's actually telling the truth. And you don't want to go in not trusting people. So I'm very.
Physicians and High Earners — What Real Estate Can and Can't Do for Your Taxes
