Do Your Due Diligence When Investing in a Multifamily Property
We all like to know as much as we can about a product before making a purchase, and the same goes for the process of buying a multifamily property. Amy Tiemann — who is a real estate investor, developer and property manager, as well as the president and CEO of TMI1 Properties — recently wrote in Forbes why it is key for investors to do their due diligence before making a purchase.
“At a minimum, due diligence should include a financial review, lease audit, certificate of occupancy status check, contract review and property review, to name a few,” she writes, noting that there are several things many people miss when evaluating the existing construction of a multifamily asset.
These include the aluminum wiring. “From the mid-1960s through the ’70s, due to high copper prices, aluminum wiring was installed on new construction of multifamily buildings and residential homes,” Tiemann writes. “Typically, Fannie or Freddie will make you update these in order to get a loan.
“Sometimes, they won’t even tell you until you already have the loan and get your first inspection and then have to make the upgrades,” she continues. “My former construction company upgraded a 150-unit complex from aluminum wiring to copper, and that was an expensive fix for the owner.”
She also advises that people pay close attention to see if there are the cast-iron sewer lines on the property. “If your asset was built prior to 1975, you likely have cast iron pipes for sewer lines,” she says. “Those are just a nightmare waiting to happen. They corrode over time, and you will not escape the wrath of them breaking.”
According to Tiemann, it is not a matter of if the pipes break, but when. “When cameraing the lines, your plumber can’t really tell what type of material the pipes are made of, unless they see rust — and then it’s obvious,” she says.