In this interview, host Cody talks with broker‑investor Brandon about the essential steps and best practices for real‑estate due diligence. They cover how to verify lease terms using estoppel certificates, examine tenant ledgers, rent rolls, utility bills, insurance policies, and bank statements to confirm cash flow. They discuss the importance of understanding property tax assessments and potential reassessments, which can dramatically affect operating costs. The conversation stresses the need for on‑site inspections to spot red flags such as sketchy owners, drug‑related activity, or other safety concerns that cannot be detected through paperwork alone. Brandon advises taking advantage of cooler market conditions to allow more time for feasibility studies, using a thorough broker‑provided checklist, and consulting professionals rather than relying on sight‑unseen purchases. Contact information for further assistance is provided.
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Today we're talking about real estate best practices, specifically due diligence, because some people just wander through feasibility periods when they're buying deals. I'm here to tell you you shouldn't do that, and I learned this from Brandon.
Thank you.
Hey YouTube, this is Cody. I'm here with my buddy Brandon today, and this is actually my go-to broker when it comes to buying real estate.
Yeah, due diligence is an important part of the process, and The bigger the deal though, there usually is more to it, right? On a duplex, it's pretty easy, pretty easy to go through that. But on a big property where you've got swimming pools and sprinkler systems, it's a little bit of a deeper process.
So on a duplex or someone who's getting started, maybe 2 to 4 units, what should they be looking at?
Okay, you definitely want to look at the leases, right? You want to do it, use a stopple certificate. That's a good thing that we learned a few years ago about.
So what is that?
Yeah, it's usually on bigger commercial deals where you verify with the tenant in place what they're paying for rent, what they have on deposit, what their lease terms are, because you may have an owner or landlord that says, "This tenant only has a $500 security deposit," but the tenant fills out that estoppel certificate and they say, "No, no, no, I've got a $1,000 security deposit." And so you use that to verify that.
So they fill out the information for their lease that they understand to be true and then they sign it.
And the tenant fills it out, not the landlord. Sometimes the landlord says, "Oh, I'll fill that out and get it back to you." Like, "No, no, no, I need the tenant to fill that out and sign it and get it back to us." Okay, so what else?
So we verify that. How do we verify that tenants are actually Is he paying rent?
Right, look at tenant ledgers. Usually now a good PM, if there's a PM involved, will use a system like Appfolio, like our company does, right? So you can look at the tenant ledger, what they've paid since the day they moved in. You can look at the rent roll. We also look at utility bills, right? Who's paying? Sometimes the tenants pay their own utility bills or a portion of that, and are they current?
Yeah.
Insurance, how much is insurance on the property? All these things are part of the due diligence process.
And then my favorite one to look at is bank statements. Got it. Buyers are liars and sellers are worse. That's just the reality of the game. So it's one thing to take information from them and even from the tenants, but make sure that the tenants are actually paying through those bank statements.
And one more thing on the due diligence, which is on every property, is property tax. So some sellers can have a senior exemption, at least in Washington State, and they may only be paying a few hundred bucks in property taxes. But when you or me take over that property, we're going to be paying market rate property taxes, which could be thousands more per year.
Yeah, my taxes and insurance 10x'd on the resort. They actually went from $2,000 a year to $20,000.
There you go. See, so that's a good one to verify as well.
So how do you project that? Is there just a percentage? Do you go state by state?
So every state is different. I know in Washington they get reevaluated by county, right?
Yeah.
And then the county has to go out there, a drive-by, an assessor every 6 years. To take a look at the condition of the property, but they get adjusted on purchase price and every 2 years on certain ones as well. So depends on the county.
So we looked at a 16-unit in Tulsa, Oklahoma a little while ago. The numbers looked great.
Yeah, it looked fantastic.
We got there. What turned us off from that deal when we got into due diligence?
Oh gosh, where's my list? Let's see. The owner was a very sketchy guy. His Lamborghini parked out front was one thing we had questions about.
Drug income doesn't count.
Drug income doesn't count. Needles sprawled out in the back, heroin needles. I think every tenant had a security camera out front of their door. There were many red flags that we wouldn't have known until we got out there.
So as a broker or an investor, because Brandon is both and I'm less of a broker, more of an investor, it's really important to look past the numbers and also look at the property.
Yes, it—
you can't just do the sight unseen thing.
That's no idea. You got to invest a little bit in the process. Like, we, we invested time, right? We bought airline tickets, hotel, car rental. We went out there and we found it wasn't a good deal. And that's just how it goes sometimes. Sometimes you pay for inspections and sewer scopes and things like that. It just doesn't make sense to move forward.
However, it's not worth buying a bad deal. You got to make sure you're just buying great opportunities in great locations. The story behind the real estate is worth more than the real estate. Don't just buy it for numbers.
Exactly.
So do you have anything else you'd like to share with the channel when it comes to due diligence, looking at buying deals when you're under feasibility, what you should do?
I would say, you know, right now the market's kind of cool, so you get more time to do due diligence and feasibilities and things like that. Yeah. Before, when the market was just bonkers, we were waiving inspections, waiving feasibility, and all kinds of stuff. Now you get a little more time to kick the tires, so you don't need to make a hasty decision. Take the time, reach out to a good broker, right? Ask what kind of a checklist that they should be going over, uh, before they move forward on buying that property.
That's awesome. How should people connect with you if they want to get They can follow my Multifamily Momentum channel.
They can email me, brandon@bv-re.com, and I'm happy to help anybody look at a deal.
