1. Due Diligence- Definition
1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale. 2. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

2. Due Diligence Who Originated this Statement? Ronald Regan Yogi Berra
Vladimir Lenin

3. Types of Due Diligence Market Financial Physical Legal
Time
Market Due Diligence Should Proceed all Other Due Diligence

4. Market Due Diligence Economic Factors Demographic Analysis
Jobs
Income
Education
Market Rental Analysis
Market Vacancy Rate and Absorption Rate
Crime Report
You Can Fix the Property, But You Can’t Fix the Neighborhood

5. Market Due Diligence- In What Phase of the RE Cycle is Your Market
Sell Here
Expansion Phase
Contraction Phase
Above Long Term Average Occupancy
Below Long Term Average Occupancy
Recovery Phase
Recession Phase
Rents are Increasing
Rents are Decreasing
Buy Here

6. Consider Employment Growth
November 2014: CA +2.2%, +344,100
ANNUAL PERCENT CHANGE
Top 3 year over growers in the private service producing sectors.
Source:
SERIES: Total Nonfarm Employment
SOURCE: CA Employment Development Division

7. Consider Number of Employed
SERIES: Total Nonfarm Employment
SOURCE: CA Employment Development Division

8. Market Due Diligence -Demographics
Household income
Estimated Population: 58,541
Population Growth (since 2000): -5%
Population Density (ppl / mile): 14,640
Median Age: 33.28

9. Market Due Diligence -Multifamily Purchases Increasing
Do Other Investors See the Market the Same as You?

10. Market Data is Good-SubMarket is Better
Use These Data to Calculate Price Per Unit

11. Market Due Diligence -Rents and Vacancies

12. Financial Due Diligence-Valuation
Appraisal/Broker Opinion of Value
Price Per Unit
Price Per Square Foot
Property Sales History
These values should be compared to the Market/submarket norms

13. Financial Due Diligence-Income
Income Statement
Rents
Other Income
Rent Rolls (Past 3 years)
Review All Leases
Tenant Background
Obtain Tenant Estoppel Certificates
Tax Return
Bank Statements

14. Financial Due Diligence- Expenses
Expense Statement
Tax Return
Property Tax Assessment
Insurance Policy
Insurance Claims History
Security Deposits
Utility Deposits
Existing Contracts (Property Managers, Maintenance, etc.)
Loan Documents (if assuming loan)
Utility Bills

15. Legal Due Diligence Seller Listing Agreement Purchase Agreement (RIPA)
What’s Included in the Sale
What are the conditions of the purchase
Purchase Agreement (RIPA)
What are you Offering
Seller Disclosures
Title
Who Owns Property
How is Title Held
Deed
Covenants, Conditions & Restrictions (CC&Rs)
Ownership Rights
Litigation History
Liens
Recorded
Unrecorded

16. Legal Due Diligence-Governing Bodies
Zoning
Rent Ordinances
Rent Control
Number of Occupants
Etc.
Building Permits
Easements
Is this Property Suitable for it’s Intended Use?

17. Physical Due Diligence
Location
Class/Age
A (0-15)
B (15-30)
C (30-45)
Building Inspection Report
Roofing
Plumbing
Electrical
HVAC
Mold Inspection Report

18. Physical Due Diligence
Capital Improvement History
Deferred Maintenance Report
Environmental Reports
Engineering Report
Lead Paint

19. Who Can Help and Where

20. Reference General References Demographic Crime Data
diligence-factors
Demographic
Crime Data