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What Due Diligence Looks Like Post-COVID-19

In an article published in May, I outlined what due diligence comprises. Today I will update you with some changes that have taken place since the arrival of COVID-19.

As a refresher, the most common usage of the term “due diligence” refers to the verification of an asset before it is purchased. This is broken down into two sections, the Financials and Data, and the Physical Asset. Previously, this process was straightforward. However, because of the changes caused by social distancing guidelines and shelter-in-place orders, we have seen a need to shift our process.

Taking Extra Precaution

When we put a property under contract, the first thing we do is inspect all of the units. The problem is that not every person wants to let you into their personal living space, especially if you have been entering other people’s personal living space within a short period of time.

So how do we navigate this shift in mindset? Well, the first thing we have to remember is to be mindful of people’s safety and comfort levels. We must be mindful of not only the residents’ safety but also the safety of our team members. To help with this, we require all on-site team members to have their temperatures taken. The name of the team member, the temperature reading, and the date and time are entered into a log. We also ask questions about each team member’s personal health to be sure that no one is exhibiting any flu-like symptoms.

Furthermore, we have the on-site team contact each resident to ask them a series of questions about their health, and if they are currently under or have recently been under a quarantine order. However, even if all that checks out, it doesn’t mean that everyone will feel comfortable with someone entering their apartment. We want to be considerate of this and if a resident does not feel comfortable with us entering their unit while they are present then we request that they vacate the unit for a period of time for us to conduct the inspection. If they still do not wish us to enter the apartment, we are respectful of their wishes. We will, however, ask them to provide photos via email of some specific areas in their unit so we can make sure everything is in working order.

For the residents that allow us into their unit, we make sure we take the necessary steps to keep everything sanitary. The team members put on shoe covers for every inspection (which are discarded after each individual inspection). Depending on the number of units, that can be a lot of shoe covers, but it is a small price to pay to make sure we do not contaminate anything. The team members change out gloves for every unit and wear face masks while inside units. The team members maintain social distancing guidelines with the residents during their inspection in the unit. We have found that with the above guidelines we have seen that 99% of the residents are comfortable with us entering.

Inspections

Unit walks are not the only obstacle we face in a post-COVID-19 world. We also need to have inspectors come to the site that may have to fly in from another state. The phase one environmental study, the appraisal, and the property condition report are all inspections that need to take place. Early on we are checking with our third-party contacts to see where the inspectors are located. When possible, we use local contractors to avoid plane travel and other delays. Many of these firms are based in New York City, which is a COVID-19 hot spot and requires a mandatory quarantine period of 14 days for any person traveling from it. A 14-day delay would cause us to lose valuable time.

Reports

Once we have navigated these obstacles, we still need to receive the reports. Reports such as phase one environmental study require lab testing which, in turn, requires items to be sent via mail. There could be delays both because of shipping and lab backups, either from recent shutdowns or from the increased workload. While we hope for the best in this area, the only way to mitigate this risk of delay is to have verbiage in the contract that allows for extensions for delays as they relate to COVID-19.

Maintaining A Solid Reputation

While we understand that the landscape of property acquisitions is constantly changing, we keep our eyes open and our minds working to make sure we continue to complete our due diligence process in a timely and efficient manner. Our goal is to keep everyone’s confidence in us at a very high level. In the March article called Reputation Is Everything, I talked about having a good reputation with brokers and with other property sellers. If we continually complete everything in a timely manner and show that we are in tune with changes, our reputation will continue to build. We believe in an Extreme Ownership mentality. No matter who we delegate tasks to, it is ultimately our responsibility to make sure they are completed effectively.