The importance of a diligence checklist

The diligence process for a multifamily building is complex.

In essence, you are buying a small business, often using a lot of debt.

And, if you’re buying the kind of beat-up buildings in which we specialize, often you’re doing the deal with missing / incorrect information from the seller.

To make sure you don’t miss any major issues, it’s critical to have a detailed checklist you go through for each deal.

In our case, the checklist has evolved over close to ten years, through something like 75 deals.

Every time we realize we missed something in diligence on a deal, we add that issue to the checklist to ensure we don’t miss it on the next one.

For example: One time we bought a deal next door to where a bunch of gangsters hung out all day. It took a lot of calls to the cops, etc. to get them to leave our tenant alone.

Over time, with experience, we’ve been able to use our checklist to see issues coming and either bail out or, more often, find a way to mitigate them.

No investment investment is without risk. There are always unknowns and things you can’t control.

But our job is to review each investment in minute detail, in order to absolutely minimize the chances of something unexpected surfacing and biting us (and, by extension, our investors) in the ass.