There are two sides to due diligence – financial and physical. On the financial side, you analyze financial statements, rent rules, and other documented information. On the physical side, you visit the property to get an idea of whatever improvements or plans you might need to do in the future.
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Our guest, Omar Ruiz, emphasizes the importance of practicing due diligence before moving forward with a deal. He also talks about a particular deal that he had to walk away from because of inaccurate financials and utility issues.
Dylan Marma, on the other hand, shares his due diligence checklist. Having a checklist is helpful because, during the process, a lot of small pieces move around all at once. You are working with investors, answering questions, juggling relationships with the lender, and ironing out issues with your attorneys. It gets difficult to stay focused, so a checklist can come in handy. You’ll surely learn a lot from this episode. Be sure to tune in!
Key Points From This Episode:
- In one of his deals, Omar had to extend the due diligence period several times because of a lot of issues in the property.
- How does Omar manage the due diligence process for markets in different areas of the country?
- When you are doing due diligence, you also get the opportunity to scout around different markets.
- How often does he go to visit out-of-state properties?
- Omar shares one of the biggest mistakes he did in one of his deals.
- What are the issues that operators often miss in the due diligence process?
- Bank statements are really the only way you can 100% verify that the income that is coming in is in fact that income.
- How does he deal with sellers who are not comfortable in showing their bank statements?
- Plumbing line is one of the costliest things that can be overlooked in the due diligence process.
- When doing the due diligence, find out where you can save money.
“Sometimes you have to make perfect decisions with imperfect information.” – Omar Ruiz
“There are some things you can live with and there are some things you can’t, right? So, let’s identify what are the things that we can’t live with and make a clear list of those so that even before we even go into due diligence or go into contract we have that clearly spelled out.” – Dylan Marma
“But make sure that you give yourself time to get physically out there on the property. If you can get in the units ahead of time and actually do a – it’s kind of fake due diligence but it would be early due diligence before the contract’s actually signed.” – Dylan Marma
Links Mentioned in Today’s Episode:
About Omar Ruiz
Omar Ruiz is CEO and founder of LeRu Investments LLC. He’s been a real estate investor since 2009, but started in property management in 2006. Him and his partner realized how important property management was to successfully operating multifamily properties, so they decided to start a property management company with the goal of owning larger apartment complexes. Since then they’ve owned multifamily properties in 3 different states and also flip properties in California and Houston Texas. Omar Ruiz’s main expertise is in analyzing property financials and due-diligence.
About Dylan Marma
Beginning his real estate investing career in 2015, Dylan climbed the ranks to become the youngest Director of Sales in one of the nation’s premier real estate investing education companies. Experienced in leadership and public speaking, Dylan founded the corporate Toastmasters group for said education company in San Diego. He also manages a large real estate networking community to teach others how to invest in Multi-Family Real Estate. In 2018, Dylan relocated to the South East to pursue the potential he recognized in the market, and shortly after took on the lead role of Acquisitions & Investor Relations with Rand Partners LLC.
All four Rockstar Capital communities ranked in the Top 1% nationally (out of 101,000 communities) in online resident satisfaction. Most recently, Rockstar Capital was included in the prestigious Houston Business Journal Fast 100 and recognized as the 15th fastest growing privately held company in Houston from 2015 to 2017. In 2019, Robert Martinez became the first two-two recipient of the National Apartment Association’s Independent Owner of the Year and was recently recognized by the Houston Business Journal as one of Houston’s 60 most admired CEOs.
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