Key Takeaways
- Diligence is where deals get saved or killed. The physical inspection shows you what the proforma and the offering memo don't
- The non-negotiables: roof condition, plumbing (camera the main lines), electrical panel capacity, and an insurance re-quote
- Walk every unit. Photos and tenant surveys miss active leaks, non-permitted work, and damage that's been covered up
- The point isn't just to check the seller's numbers. It's to build your own assumptions from the ground up
Most buyers start with a walkthrough and a spreadsheet. Walk the property, check the rent roll, run the numbers. That approach works fine until it does not. The lessons below come from the kinds of ugly surprises that make operators sharper over time.
Walk Every Unit. Every Time.
This sounds obvious, but a surprising number of buyers skip it. They walk the vacant units, peek into a few occupied ones, and assume the rest are similar. Cast iron drain lines crumbling inside walls thirty feet from a unit described as "recently updated" are not uncommon. Neither are illegal conversions — studios turned into two-bedrooms with drywall and a prayer — that create code enforcement nightmares if not caught before closing.
Walking every unit takes time. On a 24-unit building, it might take half a day with proper coordination. But the cost of finding a $50,000 problem after closing is a lot higher than the cost of a few extra hours during inspection.
The Rent Roll Isn't the Whole Story
Sellers present rent rolls that show what tenants are supposed to pay. What matters is what they actually pay — and when. Buildings where the stated rent is $1,300 a month but actual collections average $1,100 because three units are chronically behind and one has not paid in four months are more common than sellers would like to admit.
A rent roll tells you what the leases say. Bank statements tell you what actually happened. The gap between them is often where the real story lives.
Always request at least 12 months of bank statements alongside the rent roll. Reconcile them line by line. If the seller pushes back on providing bank statements, that tells you something too.
Know Your Systems
In a garden-style walkup, the major systems are straightforward but expensive when they fail: roof, plumbing, electrical, and HVAC. Operators with construction backgrounds have a real advantage here. They do not need a consultant to determine that galvanized supply lines in a 1970s building have maybe five years left. They can scope the plumbing, price the replacement, and factor it into the underwriting before submitting an offer.
The items that deserve the closest attention: roof age and condition (get on every roof with a moisture meter), main sewer cleanout condition, panel capacity and wiring age, and HVAC system type and remaining life. If any of these need full replacement within the hold period, that needs to be known before closing — not after.
Insurance: Check It Before You Rely on It
Insurance costs in South Florida have been volatile for years. A building's current policy does not reveal much about what a new owner will pay after acquisition. Getting a re-quote from an insurance broker during due diligence, based on actual condition and planned improvements, is essential. Deals where the insurance re-quote alone adds $800 per unit per year to operating costs — an expense the seller conveniently excluded from the proforma — are worth walking away from.
The Deal You Do Not Do
Perhaps the most important lesson due diligence teaches is the value of saying no. Good operators kill more deals than they close. That is not excessive caution — it is because proper due diligence reveals problems that make deals not worth doing. Structural issues that are not fixable in-budget. Environmental concerns. Title problems. Tenant situations that would take 18 months to unwind.
Every deal walked away from makes the next evaluation better. Inspection reports go into a database. Cost estimates get compared to actuals from prior projects. Over time, this compounds. The operator gets faster at identifying good deals and better at avoiding bad ones. That is the real payoff of doing due diligence right — not just on the current deal, but on every deal that follows.