Once the buyer and seller agree on terms and conditions outlined in the Purchase and Sale Agreement (PSA) the due diligence process begins. Commercial real estate is much different than the single family market. Most buyers do their research and due diligence up front when they invest in a home. When you invest in an apartment building, a majority of the due diligence is done after the buyer and seller agree on price and terms. That means you have the opportunity to negotiate.

Most investors do not complete thorough a due diligence process. For most, due diligence encompasses an audit of the books and records, physical inspection and title review. This is an ideal time to hire professionals to help you with the process, and I'm not talking about the real estate agent! They want you to buy the property.

There's always some unknown that pops up during due diligence. Maybe the roof is old. Maybe half of the residents have nearly destroyed their unit. There's always something, and this is a good opportunity to continue to negotiate a favorable transaction. Inspectors can help point out issues and, if necessary, you can get estimates from other professionals regarding the cost to correct the issue.

The due diligence was created to give the buyer ample time to research and inspect every aspect of the property before making a final buying decision. In a hot market, buyers are usually forced to make a decision in a very short period of time. In a slow market, sellers (and their agents) tend to be less aggressive in hope that you will perform. You can use both to your advantage.

Many buyers find negotiations to be difficult and intimidating when investing in apartment buildings. I personally feel like the negotiation process is the most exciting part. The first step in negotiating the "purchase of a lifetime" is to uncover seller motivation. Understand why, when and how they want to sell the property. If you don't know that, you can't help them solve their problem while they help you solve yours. If you want to pay $1M for a property and the seller wants $2M, all of the documentation in the world won't do a thing for you if the seller isn't motivated. Start with motivation, then carefully assemble the supporting documentation to strenthen your position.

As an apartment investor, take full advantage of the due diligence process. Many commercial real estate investors let this precious time fade away and then make an uneducated investment. Take the time and spend your energy learning everything you can about the seller, property and surrounding market. When you do that, your chances of making a sound investment decision will shoot through the roof.

Wish you all the success,

Steve Steadele

About Steve:

Steve Steadele, author of the book Multifamily Millionaire, is a successful Real Estate Investor, Broker, Entrepreneur and self-made millionaire. He is a featured speaker at Real Estate Investment Associations across the country where he shares his wealth of knowledge, experience and enthusiasm for the real estate industry. Today Steve specializes in the acquisition and disposition of investment real estate throughout the United States. To learn more about his products and services, visit his Web site at www.SteveSteadele.com.

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