Process for making an offer on a multi?

[Martha Daisley]

Hello

i am in the process of evaluating my first multi family deal. I have been speaking to potential lenders all of last week. Today i just finished looking at the property and id like to make an offer. The sellers supplied a summary of the financial info (revenue and expenses), However i havent received the actual accounting financials , leases, and rent roll from the sellers yet.  Most of the potential lenders want to see this info before they can give me terms and an interest rate. So what is the next step? Do i make a preliminary offer?(which i may need to change later when i get the info and get terms from the lender) or do i wait until i get the financial info first before making the offer? There are also other interested parties so i want to make sure im moving quickly.

thanks!

Martha

[Israel Garavito]

@Martha Daisley

Hi Martha. Dealing directly with sellers is a little different than with brokers. It can be better or worse, as part of a broker’s job is to counsel an unsophisticated seller as to which offer is probably the best. Sometimes it’s about price, sometimes about timing, and others it’s about what the new owners will do with the property once it’s theirs; but ability to transact is always first on a broker’s checklist, so it’s important to communicate that you have the ability to close. Also, brokers will have almost all of the financial information already in hand and can deliver it before you make an offer.

When working with sellers you don’t have the valuable tools that a broker can provide. However, you have direct access to the seller and can find out for yourself, no filters, what their priority is on choosing a buyer. So spend some time speaking with the sellers and zero in on this. Then put an offer together and tailor it to them.

If you don’t have all of the financials you can make a reasonable offer with the rent roll, some expenses and a few assumptions. But I would speak with the seller and advise them that the more info you receive the more polished your offer will be—you want to avoid a bait and switch (make an offer and then ask for X off before closing) at all costs unless there are major underlying undisclosed issues that pop up during due diligence (major water or fire damage, fire hazards,

Structural integrity issues, etc). One of these major undisclosed issues would be rent rolls, T12s, schedule Es and/or bank account deposits significantly lower than disclosed and which would impact the property’s value in a major way and force you to reduce or re negotiate your initial offer (and this fall back to the bait and switch). A sophisticated seller will understand this.

So you underwrite with this and with approximate loan terms. Once you have a goof lender relationship this will be easier. But make some reasonable extrapolations here. Get some sales and rent comps in the area to see if your offer is reasonable, etc etc. Then put together your LOI.

Within your LOI you will primarily communicate your ability to transact. You also specify all of the docs you will need to sign a PA and begin your due diligence. Once your LOI is accepted you put together a PA. Once that is executed you make your deposit and go into due diligence.

You may also skip the LOI and go straight to a PA. This happens sometimes with FSBO properties but it is rare.

Hope this helps