multi family due diligence

[Rahul Bhatt]

I have one question in multi family investment. how do one verify expenses information. 1. I asked utilities bill I got a push back from listing agent.there are some water expenses which looks really low. 2. they are giving really low amount for repairs. in general what is the best way to verify financial in apartment complex. i read many books all says that one should get actuals to verify. but just wondering if it works differently in real world. I have analyzed some properties where owner provided tax return for two years. what are the standard practice. is it different for different area. currently I am looking at one property in sf bay area others I have analyzed was from Ohio. thanks for your help in advance.

[Vic Reddy]

@Rahul Bhatt  - Is this property managed by the Seller or Property Management? I prefer properties managed by Property management as income & expenses are better documented.

Generally in the LOI, I always ask for the following before going under contract

1)  2-3yr income statement (P&L with all income & expenses)

2)  Current rent roll with monthly rent payment dates (to see late or pending rents) and  lease start/expiration dates

3) 2yrs Tax returns (K1 or Schedule E)

4) Seller Disclosure on the condition of the property with upgrades and current known issues

All these need to be signed by the Seller. 

Sometimes Sellers aren't willing to share all or some of these docs and I tend to be more cautious.