When it comes to multifamily investing, there are many unique situations/scenarios that can occur to impact the outcome of the deal. We look at one hypothetical scenario, and what BAM founder and CEO Ivan Barratt would advise in that situation…
Rent Roll Inaccuracies
If a buyer relies on the data in a certified and even notarized rent roll, goes through escrow and learns (after the fact) that the rent roll was inaccurate – then what?
An Ounce of Prevention
In this case, you’d likely find yourself dealing with an attorney, expenses, and the time involved to reach a settlement. According to Ivan, the better option is to use your due diligence period wisely. Instead of relying only on a provided rent roll (which could be inaccurate), Ivan has a better suggestion. During your due diligence, audit both the leases and financials. In addition, have a clause for vacant units under a threshold, and a credit for any vacant units which aren’t rent-ready.
By taking time during your due diligence period,working through the leases and financials, and also creating a safeguard for vacant units, you’ll limit the risk of major headaches (and possible legal troubles) later!
Take Time with your DD Period
Ivan has talked repeatedly about how the mentality of being in a hurry to get the next deal and losing focus on the details can cause you to miss things and create major problems. Performing your due diligence is vital to ensuring that you find the right deal and that it goes as smoothly as possible. Currently, BAM looks at an average of 200 deals to find one that is a good opportunity! If you’re just starting out, Ivan often recommends underwriting at least 100 deals to develop what he calls a “fingertip feel” of what makes a deal good. You’ll start to pick up what should be there, what might be missing, and what deals should (or shouldn’t) make the grade.
Ivan recommends ongoing education in not just multifamily investing, but also in sales and overall broad economics. (You can find Ivan’s book list here.) Whether you’re starting out or have already been through many deals, there’s always more to learn. For instance, Ivan often makes use of his time commuting by listening to relevant, good content. If you’re ambitious and are set on acquiring even more multifamily properties, Ivan often says that “the journey to 10,000 units begins with the next deal.” By learning, performing due diligence, and preventing costly mistakes, you can ensure that your journey is likely to be less rocky and more successful.
Want more advice from Ivan? Head over to ivanbarratteducation.com. You’ll find a free library of articles and videos featuring Ivan and his insider information and tips.