7 unit apartment with no owner records

[Kevin Rogers]

I am in pursuit of purchasing a 7 unit apartment building. The area is good. The cash flow potential is very good according to the asking price. The bank needs two years of rent history to assess the value of the building. The owner has kept poor records and gave me a fumbling handwritten description of rent paid and vacancies to pass on to the bank. He has no rental agreements in writing. WOW! As I was viewing the property with the owner, he admitted that most of the tenants paid in cash (he swore he reported it to the IRS)(?). The property would be a good addition to my portfolio but I am not sure how to accurately estimate the value due to the poor record keeping by the owner. Any advice in purchasing without solid records?  

[Joel Owens]

Typically with a property this size you require the schedule E tax transcripts of the seller from the IRS. The seller signs a form which then the information can be released to you from the IRS.

Some sellers keep double books.  Some sellers will lie to buyers directly but most do not have the big brass ones to do it to the IRS.

The estoppels are important also. If you can't verify everything you have to assume the absolute worst when buying a property. On the commercial retail side when a client is selling a multi million property at a 6 tor 7 cap rate you better believe they have impeccable records.