Day 47: How Long Should Self Storage Due Diligence Take? The Real Timeline

All right, welcome to day 47 of the Storage 100. I am, of course, Joe Downs with the Storage Moguls Mastermind. And okay, let me start off with a story. Um, I heard recently a buyer gets a deal under contract. The seller says, we need to close in 30 days. I've got another buyer lined up if you can't do it. Buyer panics. They agree to 14 days due diligence and a 30 days, uh, closing. 2 weeks later, They're scrambling. The Phase 1 environmental hasn't come back yet. The survey is delayed and the bank hasn't approved the loan. The due diligence deadline passes. The buyer asks for an extension. Seller says no. Now they're committed to closing with half the due diligence incomplete. They close on the deal anyway. 3 months later, they discover the property is in a flood zone and insurance is $70,000 a year instead of the $14,000 they budgeted. The deal is literally underwater. They never should have closed. That shouldn't have happened. And so today we're covering how long due diligence should actually take and why rushing it is a terrible idea. So how long should it take? Well, it depends on the size and complexity of the deal. For smaller deals under $1 million, 30 to 45 days is typical. I would argue if you're experienced, you could stretch that Up to $3 million. But let's stick with the program here and say for mid-size to $1 million to $3 million deals, especially if you're new, maybe 45 to 60 days. What makes the difference in price? Sometimes nothing. Sometimes there's just more complexity. For larger or more complex deals or land, 60 to 90 days all day long, especially if you're new. If the property has environmental issues, zoning complications, multiple buildings, You're going to need more time. Don't let a seller pressure you into a short due diligence period unless you've already done a lot of work upfront. And if you're new to this, negotiate 60 days minimum. Give yourself room to breathe. So here's the process. Week 1, sprint. You got to move fast. The moment the contract is signed, you need to order your third-party reports. Phase 1 environmental survey, property condition report. These take the longest to get back. So if you wait a week to order them, you're already going to be behind. Simultaneously, you need to collect all the financials from the seller— tax returns, P&Ls, current rent roll, bank statements, management reports— and you need to schedule your site visit. Get boots on the ground as soon as possible. Week 2 and 3 are your deep dive. This is where the real work is going to happen behind the scenes. You're receiving reports you ordered in week 1. You're doing your lease audit, comparing the rent roll to the actual lease agreements. You've done your physical inspection, walking every unit, checking every door, looking at the roof and HVAC. You're verifying bank statements against the P&Ls. If you find a discrepancy, this is where you document it. Week 4, decision phase. This is your final gate. You should have all your third-party reports back, including the environmental report and the survey. Now you're going to review everything in this phase. Did the environmental come back clean? Is the roof okay? Any issues with the survey? If you found no major issues like a $50,000 roof repair you didn't expect— I'm sorry, if you found major issues like that, like a roof repair, now is when you negotiate. Some people call this retrading. I call it making a fair deal. You ask the seller for a credit or a price reduction. Once you resolve those issues and, you know, they have choice and you have choice, you can waive your contingencies and go hard with your money or terminate the deal and walk away. Don't let the deadline pass without making a conscious decision. Can you do it faster? Yeah, but it's risky. Some competitive deals might require you to go to a 21-day due diligence, kind of like the story I told you at the beginning. If you're experienced and you've done deals before and you've got property inspector in your back pocket, like ready to go right away, and you know the moon's aligned, you get it, you get all your reports done. Yeah, you can make it work, but you need to order every all your reports immediately. Day one, not day three. You need a responsive seller who provides documents quickly. You need you probably needed an access agreement so that you could actually start this process before even. Sign the contract. Um, and but you need to be prepared to go hard, maybe without all the reports in hand. I don't recommend it for, especially for new investors. The risk of missing something is far too high. And if a seller won't give you 30 days, I would, I would ask them why they're in such a hurry. Um, it, it, it's, it's odd. I would say that. What happens if you get to 20, day 25, and you're not ready to close though? Well, maybe the survey's delayed or the bank needs more time. You need to ask for an extension. Best practice is negotiate extensions upfront, right in the contract, extension options for various reasons. And they could just be commercially reasonable reasons. But, you know, maybe, maybe even the right to extend for an additional fee. If it's not in the contract, you're going to have to negotiate it. So You're negotiating somewhere, you might as well negotiate it upfront. Money talks though. Offer to release some earnest money to the seller to show you're serious and they'll probably give you 2 more weeks. Sellers are usually okay with this because they get cash in hand and they know you're committed. And it also depends on what's the extension for, and you can also narrow it down to very specific reasons. But here's a real example. Buyer agreed to 14 days of due diligence to win a competitive deal. They ordered the Phase 1 environmental on day 1, came back on 16. 2 weeks. 2 days after due diligence ended, they ordered their survey on day 1, and that came back on day 18, 4 days after. So the buyer had to decide, do they go hard and commit to closing without seeing phase 1 or survey, or do they walk away and lose their earnest money deposit? In this case, they went hard. Phase 1 came back clean, but the survey revealed a boundary encroachment, cost them $8,000 to fix. I would say they got pretty lucky. Could have been much worse. But you see how these things can flow. All right, here's a pro tip: build a due diligence extension clause into your contract. For example, buyer may extend due diligence period by 15 days by depositing an additional $5,000 in earnest money. This protects you if reports are delayed or you need more time to review something. I would argue you could just negotiate that if the reports are delayed for commercially reasonable reasons, you can get an extension. Carve out for specifically those items, or you can just make some of them conditions of closing. Anyway, yes, you're risking more interest or your earnest money, but that's better than going hard blindly or walking away and losing everything. Never let the deadline pass without requesting an extension. If due diligence expires and you haven't closed, you're in breach of contract. The seller can then keep your earnest money or force you to close. Okay. Hit the like, subscribe, and share button so that you can let your network know you are serious about self-storage investing, because you are, because you're watching this and you're getting all this incredible information. And so when you're raising capital for your second and third deal, they already know you're in the game. All right, next up, day 48. Tomorrow night we are live reviewing and recapping section 3. And I have a special guest, Tim Cain with the Bellrose Group and StorePro. Like this video if you've ever felt the panic of a due diligence deadline approaching with reports still outstanding. I'm really— I don't think I really want likes for this. This is what I'm coming up with. Subscribe because rushing due diligence is how you buy a property with $200,000 environmental problem. You don't want to do that. So subscribe and share this with someone who's about to agree to a 14-day due diligence period on a multimillion-dollar deal. They will thank you later.