Thinking about making your first multifamily real estate purchase and feeling a little lost or even scared?In this video, we’ll cover everything from negotiations to closing the deal. This is our sixth video in our 6 part beginner investor series! (Definitely check out the entire series.)
We are with ProspHer Collective, a woman-owned group that empowers women through commercial real estate investing to create wealth and financial freedom for themselves and their families. Here are the 5 steps to closing a multifamily real estate deal.
Five Steps to Closing a Multifamily Deal
- Preparation Phase: Before the negotiation starts.
- Make an Offer: Submit an initial offer.
- Negotiate the Offer: Go back and forth until both parties agree.
- Due Diligence: Conduct inspections and financial reviews.
- Closing: Finalize the purchase.
Step 1: Preparation Phase
Preparation involves everything you need to do before making your offer. This includes:
- Knowing your market
- Having clear investment criteria
- Being able to run a 10-minute deal analysis
- Securing a knowledgeable broker
Why is having a broker so important?
A good broker acts as your guide and protector throughout the negotiation process. They should be knowledgeable about the local market, experienced in deal negotiations, and committed to helping you make wise investment decisions.
How do you find a good broker?
Referrals are key. Ask around at local real estate meetups or groups. You can also check platforms like LoopNet or CoStar to see who has the most listings in your target area.
Step 2: Making an Offer
The first step in making an offer is drafting a Letter of Intent (LOI), typically prepared by your broker with your input.
LOI Basics:
- Offer price
- Closing timeline
- Due diligence period
- Special terms like seller financing or extended closing
What about earnest money?
Earnest money is typically 1-3% of the purchase price and is held in escrow. It shows your commitment to the deal and protects the seller if you back out after certain contract stages.
Step 3: Negotiating the Offer
Once both parties agree on the LOI, the next step is executing a formal contract. While the LOI is just a few pages, the contract can be 10-15 pages or longer. Be sure to have both your broker and a real estate attorney review it.
Step 4: Due Diligence
Due diligence has two main components:
- Financial Due Diligence:
- Review the trailing 12-month income statement (T12).
- Examine rent rolls and lease agreements.
- Check utility and maintenance records.
- Physical Inspection:
- Inspect every unit — no skipping!
- Check mechanical systems, plumbing, and electrical systems.
- Hire specialists like HVAC technicians, plumbers, and electricians to assess major systems.
Step 5: Closing the Deal
During due diligence, ensure your financing is secured. Talk to your lender as soon as you have an LOI — don’t wait until the last minute.
Once financing is confirmed, your title company will schedule a closing date. Review all documents ahead of time to ensure accuracy. At closing, be ready to sign a lot of paperwork!
Congratulations — you’ve closed your first multifamily real estate deal! Stay connected with ProspHer Collective for more real estate investing tips and resources. Also, we have shared our free tools like our buying criteria in our FREE Facebook group.
