What info should I expect from a seller on a 4plex?

Question

Hi all,I have a 4plex I would like to put an offer on. It is a square box with mirror image 2/1 units. The owner has provided a half page of financials. It tells me the rent roll, insurance, utilities and taxes. I feel there should be more information, but I am unsure what to ask for. Cap rate for the area is tough to pin down (CA) - and the numbers the agents throw out are laughable. Seller is a developer that is looking for cash on a large project. He did a 1031 and bought several properties in January 2015. This is also why there isn't any info.Advice would be greatly appreciated as well as what books to read. Since this is in CA so there isn't a lot of wiggle room. I need to get it right. Thanks!Anne

Sorab G. · Answer

Take it from a guy that owns many of these. Make sure you or your agent specifically speaks with each person living there and validates what they are paying. If the seller gets it its called an Estoppel certificate, but many of these have been known to be forged. For me its happend at least 3 times.A list of maintenance issues fixed and outstanding issues to be fixed.Tax information might give you some information but i doubt its based on any fact.Get examples of how much all things cost, water bill, garbage. Reach out to the city to see if any inspections or code violations have been given.Run the numbers.. these types of properties have more costs than SFH's or duplexes.

Account Closed · Answer

What more do you need? Get a copy of the leases, know the taxes, figure out your finances make an offer contingent on an inspection.Good multi gamilies go fast so dont wait

Anne Dahl · Answer

This is probably a stupid question so forgive me, but I can't seem to google an answer or find one here. When you say "request tax returns", do they give you a portion that pertains to the property? What exactly would they give you?

Patricio P. · Answer

Request tax returns, utility bills, rental agreements, bank statements etc. You need independent sources of information to corroborate the claims he is making. You should trust but verify. That is part of the due diligence and any investor should be understanding and willing to cooperate with most of these requests.

John Kai · Answer

Excellent advice Sorab! I'm going to make a list of information to insist upon from the seller's agent whenever doing the due diligence on a property. Thank you for this input. Aloha, John

Patricio P. · Answer

@Anne DahlTake my advice with a grain of salt (because I have not been through the process myself) but that is the standard advice that I have heard. Essentially, you want ways of proving they actually received the rental income that they are claiming. There are tax documents pertaining to their real estate holdings that would be included in their overall tax filing that should be able to confirm the data they are providing you. You can always talk to a CPA (which I recommend) on how to do your due diligence.

Anne Dahl · Answer

Hi Frank,I'm using the MLS and I'm very green. I've chosen to start investing in the Sierra Foothills because I have many contacts and homes are affordable compared to the Bay Area. I have stellar PM and contractors lined up and it's an area where I spend a lot of time. A fourplex is rare, sells quickly and as far as I can tell, does not sell by cap rate. There is usually a 20% spread between asking price and what I think I need to just break even. I'm looking long term, for retirement. On this particular property the rents are low so I can add value to gain cash flow. Even though I am extremely conservative on my estimates, if I miss something big, it's gone. That's what I call little wiggle room - when everything has to go just so in order to cash flow. Would love ideas if you've got them! And I would love to start looking in the Tulare-Visalia area at some point. My idea is to move out to either Stockton or your way once I have more working knowledge about rentals and have built more confidence. Anne

Franklin Romine · Answer

@Anne DahlYour comment about wiggle room and CA doesn't make sense to me. Why cant you create wiggle room in CA? Wiggle room is created through the negotiation process.Frank

Vince Leydet · Answer

seems like everyone has pretty much hit it. I'm closing on a very similar 4 family Oct 30th and i made sure to get copies of leases, copies of receipts so I know tenants are paying, copy of his home insurance premium, I was able to get all tax information and receipts for repairs he has done in the last few years.

Anne Dahl · Answer

Thanks!