Commercial realtors and their faulty analyses

[Christian Carson]

I just got off the phone with a gentleman selling two duplexes in my target buy area. He asserted that the prices asked were a "solid 8.5% cap," but a quick glance at the numbers reveal that all of the soft costs - capex, maintenance, vacancy and property management - were disregarded. I see this on a lot of properties.

Conversations about these numbers with brokers can get quite awkward -- I've had some tell me that it's industry standard to price multifamilies this way (no way!) and others say that the price is the price.

Are these kinds of deals just dead in the water or has anyone had any success sending off an estimate of the true value based on actual expenses? These deals would be worth it if they actually delivered 8.5% cap.

[Bill Gulley]

Tax returns, books, contracts, look for "source documents" for claims made. Tell them you don't need the full tax returns, just the schedules pertaining to that property. Much of this should be done at least after a letter of agreement or contract, such being subject to verification. It's also easier to ask for verifications before the seller or agent starts making claims, get that out of the way early on. "I'm more than willing to pay a fair price based on verified income and expenses" is a pretty heavy clue you're not interested in claims being made. If they flutter, ask why, put them on the spot! If they have any reason not to disclose after you show you are really a buyer, tell them not to expect your best offer, if they think they will get a better offer, they usually get serious and open up. No other astute investor will be giving their highest either unless the seller opens up. That means the seller/agent is hoping for a potential buyer to screw up and offer too much, that shouldn't be you.

Trust but verify, LOL :)