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Updated almost 2 years ago, 01/24/2023
Seller refusing to provide financials
Happy New Year, BP Community!
I am currently under contract for a 14-unit MFH property. I was told that the seller is old (in her 70s) and both the seller's broker and her attorney are having a hard time getting things done because she is all paper-based.
The problem is, the seller is refusing to provide any rental history or financial information (it's been a week now), and the seller's broker is not returning my realtor's calls or messages. Her attorney also declined our request to do our due diligence including an inspection.
Before going under the contract, the broker shared a rough estimate of the income and expenses but now we are finding that there are no supporting documents. We do like the property because of its location and potential re-development possibility. What would be the best way for us to resolve this problem? Please share any insights! Thank you!
Quote from @Bjorn Ahlblad:
@Heeyeon Chung ever hear the idiom 'pig in a poke' this is it. I think you are being set up since no one is forthcoming, and they are hoping you will go through with the purchase without looking under the covers. Sounds like there are too many risks here before you even get to the tenants! All the best!
Yes, I agree with you. Thank you for sharing your insights!
Quote from @Caroline Gerardo:
Hire someone to door knock if you are not local. Speak with every tenant, take names, phone numbers, notes on what they do or don't pay. Half will be untrue. I can recommend a company if you need one, or get your agent to do the interviews.
Probably unable to get a conventional loan even if the motel is legal nonconforming. What does city/county planning say? Red tagged?
Location?
Sounds like transitional housing??? VERY HARD to MANAGE you need onsite manager, cameras, security
Our primary residence is within 5 minutes from this property which was the reason why we wanted to purchase from the beginning. I let my realtor and attorney know that we may need to do door to door. I have not checked with the city yet. I will do it first thing tomorrow! Thank you!
Quote from @Ceasar Rosas:
I would use a Hard Money/Bridge Loan that finances renovations.... get everything in order and rehabbed, take time into consideration and then refinance at the time you're done with a new value.
Thank you. We will consider using a hard money if we decided to stick with the deal!
Quote from @Mike Dymski:
If you plan to operate or ever sell as a MF property, the zoning is a deal breaker. The only way to purchase this property is contingent on a zoning change...or to get a massive discount that any future buyer would also expect due to the inability to get financing. Forget about documents...zoning is the real issue.
I believe that the area can be permitted as multi-family, but I need to legally request to change the building use from a motel to MFH. I am not sure how long it will take time : (
Quote from @Jane S.:
Just my opinion from what you have provided, but I would walk, no RUN, away from this. It's in the middle of a huge nightmare and you and your partners will be sorry the minute you take possession!
You'll be investing so many hours, days, weeks, even months in getting financed. I dont think there are many underwriters willing to walk the plank on this one.
It might help if you could do a face to face with a couple of the occupants. Also look into the history of the property which should be available from the assessor. Any crumbs of facts you can collect will help. How many times has the seller had to evict tenants? Maybe the sheriff has some knowledge. How about chatting with the USPS delivery person? They know about daily/weekly activities at a property. Has the bui.ding commission issued permits for contractors to do repairs to the property in the last 10-15 years? Wishing you luck but warning you to dig deep for the truth of this deal.
Thank you so much. I will try those routes as well!
Quote from @Valerie Kerste:
@Heeyeon Chung We just purchased a MFP with a similar situation. We proceeded with the purchase because we know what kind of profit the property will bring under our management plan and the profit margin will be great. 🙂
Hi Valerie, could you please share more information on your purchase? How did you get it financed?
Quote from @Steve K.:
Lots of good advice above... echoing what everyone else has said, I'd recommend doing A LOT of due diligence on the ground level here to find out exactly what's going on with this property. Typically I like to include what is required of the seller in a due diligence docs clause of the contract, including rent roll, T12, estoppels, utility bills, etc. Whether or not you had all that in the contract is irrelevant now however, if the seller is being uncooperative. They would just be in breach of contract and you'd have the option to terminate and get your EM back (which is probably what I would do here unless this is a really, really good deal even when running numbers using a worst-case scenario # on the unknowns). I'd reach out to the listing agent one more time and let them know that if they can't help with your due diligence requirements in good faith through the proper channels, you'll be knocking on doors to get what you need or simply terminating the contract. Then I would try to get estoppels from the tenants, call the local permitting, zoning and police departments, knock on neighbor's doors, talk to local PM's, commercial brokers who know the neighborhood really well, etc. to see what you can uncover. As far as financing, I'd contact a local credit union and see if they can work with you on it. I have a great one that would take on something like this based on pro-forma numbers (if they work obviously). They know almost every property in our area and if they don't want to lend on it, I don't want to buy it anyway.
This was truly insightful. Thank you so much for your comment, Steve! I shared your ideas with my attorney and realtor....fingers crossed!
Quote from @Russell Brazil:
Small multifamily (40 units and under) often have no records, bad records, unreliable records. It isnt going to be any better with other properties in this segment of the market.
You can go unit by unit and get estoppels signed by the tenants. This will get you to at least what the gross rents are.
We are definitely planning to buy small multifamily this year. How do you advise we prepare to purchase small deals like this one (under 20 units)? I am learning a lot from this deal as it is our first small multifamily (5+ units).
Quote from @Eliott Elias:
Is it on the contract that is has to be provided? They are definitely hiding something here, I would think worst case scenario on current rents and expenses and see if it's still worth it.
They agreed to provide them but they are not physically doing it :(
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Quote from @Heeyeon Chung:
Quote from @Mike Dymski:
If you plan to operate or ever sell as a MF property, the zoning is a deal breaker. The only way to purchase this property is contingent on a zoning change...or to get a massive discount that any future buyer would also expect due to the inability to get financing. Forget about documents...zoning is the real issue.
I believe that the area can be permitted as multi-family, but I need to legally request to change the building use from a motel to MFH. I am not sure how long it will take time : (
It's more than that...you likely need it before closing as a requirement to get financing. Or, you need a hotel lender rather than MF lender. A lender which likes multifamily (but not hospitality) will not lend on a property than cannot legally operate as a multifamily property.
@Heeyeon Chung @Ceasar Rosas hit the nail on the head.
One question I would add, have you personally walked the property ?
#1 Market Trends & Data Contributor
Quote from @Bjorn Ahlblad:
@Heeyeon Chung ever hear the idiom 'pig in a poke' this is it. I think you are being set up since no one is forthcoming, and they are hoping you will go through with the purchase without looking under the covers. Sounds like there are too many risks here before you even get to the tenants! All the best!
best reliable advice.
#1 Market Trends & Data Contributor
investing in real estate should not be as hard as investing in the oil and gas industry, when folks digging a new oil well, everyone knows they are gambling 100%. real estate investing has to be seamless and everyone should work together, including the buyer and seller, you're not buying a gold mine here so the reward/risk ratio is not there, and you may see only the pain. If it's a gold mine then I may invest. for just multifamily, not soo much. no transparency and I'm gone in a second.
how can a bank properly underwrite the deal without the financials?
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Quote from @Heeyeon Chung:
Happy New Year, BP Community!
I am currently under contract for a 14-unit MFH property. I was told that the seller is old (in her 70s) and both the seller's broker and her attorney are having a hard time getting things done because she is all paper-based.
The problem is, the seller is refusing to provide any rental history or financial information (it's been a week now), and the seller's broker is not returning my realtor's calls or messages. Her attorney also declined our request to do our due diligence including an inspection.
Before going under the contract, the broker shared a rough estimate of the income and expenses but now we are finding that there are no supporting documents. We do like the property because of its location and potential re-development possibility. What would be the best way for us to resolve this problem? Please share any insights! Thank you!
- Don Konipol
It sounds like you are facing a number of issues with this potential real estate purchase. It is important to have access to financial and rental history information in order to properly assess the value and potential of the property. Without this information, it is difficult to make an informed decision about whether to move forward with the purchase.
One option you could consider is trying to negotiate a more favorable due diligence period with the seller. This could involve requesting a longer period of time to review the financial and rental history information, or potentially offering to waive certain contingencies (such as the financing contingency) in exchange for more time to review the information.
If the seller and their representatives are not responsive or cooperative, it may be necessary to consider walking away from the deal. While the property may have potential, it is important to be able to thoroughly assess that potential before committing to a purchase. It is not uncommon for sellers to be hesitant to provide financial information, but if they are unwilling to do so and are not responsive to your requests, it may not be worth the risk to move forward with the purchase.
The reality of the situation is that it will take a lot of time, energy and resources to make this project feasible. It is important to thoroughly assess the current condition of each unit before committing to purchase - possibly performing minor repairs or renovations before renting out units if you decide to keep them as rentals. Additionally, your plans for redevelopment should be well-informed by local zoning regulations, which could affect how quickly you are able to move forward with your project and what kind of changes you can make. Taking all these factors into account, it's clear that investing in such a property requires hard work and dedication - but the reward may be worth it in the end. Good luck!
do everything steve k. advised you to do his list is more complete than mine. also get started with lenders to learn how many of them will tell you NO NO NO ...
In cases like this, it's important to be mindful of the details that you do have and make a decision based on that. Do your due diligence with the proforma, utility expenses, and purchase price you're getting. If the contract is supposed to include additional information, consider renegotiating the price or consulting an attorney about a lease estoppel. With careful research and attention to detail, you can make an informed decision. Good luck!
Quote from @Heeyeon Chung:
Happy New Year, BP Community!
I am currently under contract for a 14-unit MFH property. I was told that the seller is old (in her 70s) and both the seller's broker and her attorney are having a hard time getting things done because she is all paper-based.
The problem is, the seller is refusing to provide any rental history or financial information (it's been a week now), and the seller's broker is not returning my realtor's calls or messages. Her attorney also declined our request to do our due diligence including an inspection.
Before going under the contract, the broker shared a rough estimate of the income and expenses but now we are finding that there are no supporting documents. We do like the property because of its location and potential re-development possibility. What would be the best way for us to resolve this problem? Please share any insights! Thank you!
I have purchased. many properties without ever going in Simply assume nobody is paying rent and the property needs everything, Now tell them 85k LESS all cash and you will take it as is. If its fully occupied I'm sure each unit does not need everything. Walk around the property. Heck Im sure one of the tenants will come out and ask who you are, tell them then ask can I see your unit. NOW YOUR IN!! Also you know the expenses (you should know) you just do not know how much each tenant is paying but you know what the rents will/ should be. If not, you should not even be buying it.
HOWEVER, after reading your post again, it seems they do not want to sell. I can have one of my guys go there and see what we can find out for you, my pleasure.
The Lady does not file a rental income/expense schedule (E) for her tax return regarding 14 units (a guy just received a prison term for not declaring personal use of his business car as taxable income--what will they do to her), or is she just not going to give it to you to see.
The Lady does not maintain a bank account for rent deposits that you can see.
Estopples are your friend.
Inspection denied why? What are you supposed to do--assume all units circa 1980 and have bad sewers.
How will you asses the remaining life on the HVAC and Water heaters.
What about roof age, (repairs) and leaks.
No residents list with jobs, income, length of lease (or length of stay)--how will your bid be anything other than a "Crap Shoot"?
How many renters are not paying, and for how long, etc...
Good Luck!
Thank you everyone. Long story short, the property was operating illegally, and the seller was trying to sell it before she gets citation from the town. We met with zoning officers and a few other people from the town hall, and they all told us to RUUUNNNNN. We walked away from the deal, thanks to all your inputs. I've learned a lot from this experience, though! Moving onto the next deal.....