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.

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

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

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

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

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: http://www.labormarketinfo.edd.ca.gov/LMID/Employment_by_Industry_Data.html SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

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

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

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

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

Market Due Diligence -Rents and Vacancies

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

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

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

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

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?

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

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

Who Can Help and Where

Reference General References Demographic Crime Data https://www.biggerpockets.com/articles/2506-multifamily-investment-due- diligence-factors http://nesteggrx.com/multifamily-real-estate-due-diligence-2/ Demographic http://www.city-data.com/ Crime Data http://www.neighborhoodscout.com/