How to make an offer on a MF without being able to see inside?

Question

Seems more and more MF buildings now coming on the market are soliciting offers without the buyers being able to see the property.

Some properties said no visiting any units, don't knock on any doors, don't park on the property or walk around.

Others would show you say one unit out of four or six and basically tell you it's the same, and you don't really get to see much in a crowded unit with the tenant complaining and saying "are you done yet?  I really don't want to do this anymore..."  So you have a 5 minute quick peek at a 2/1 and have to make a decision on a six-plex without seeing anything else.

Now inspection is possible but not guaranteed AFTER an offer has been accepted, but by that time the information you need to make a more informed decision is no longer as useful as before.

Which basically forces you to assume the worse in terms of conditions and deferred maintenance in coming up with the offer.  I guess every buyer is in the same boat?  Making offers blindly?

Any advice or good practice to do in these cases other than a strong inspection contingency?

Allen Maris · Answer

Hi Sam,

I own a small multi-fam and from experience, I make someone sign a letter of intent if they want to see the inside.  Having to let everyone know, show up, show people around, etc, etc, is not that much fun.  This keeps some of the tire kickers away.  The inspection upon accepted offer is fairly common in the larger properties.

All you can do is submit your offer based on a drive by and what the owner tells you.  If I were buying on these terms, I'd put multiple contingencies.  One visual walk through upon acceptance that it's satisfactory plus your normal inspection contingency.  You have lots of out if it's not what you wanted.

Just make sure you pad your numbers for all the expenses, under estimate the income, over estimate the vacancies and if it's still making sense then give them a good offer and re-negotiate after your inspections.

Some of the apartment guys on here might have some good tips.

Jeff Greenberg · Answer

We regularly make offers on properties and go under contract without ever seeing the property.  Submitting a letter of intent and even a our standard contract doesn't cost us anything.  We usually have our brokers opinion, and maybe a willing BP investor walk the outside of the property and neighborhood.  Once we are under contract we have at least a 30 day DD period and will walk every unit. If they give you any flack about seeing all of the units, tell them it is a deal breaker.  Some sellers do not want their tenants to know that they are selling.  No problem, you just become an insurance inspector, or anything else that comes to mind.

James Kobzeff · Answer

Owners don't like to disturb tenants until they have an accepted signed-around offer. Just be sure to make your offer subject to interior inspection and your approval.

Maureen Campbell · Answer

I am definitely facing the same problem. I have looked at several properties recently, but 70% of the duplexes I have been to, I can either only see one unit or none at all. It seems to put you at a real negotiating disadvantage since you have to wait until you have made your initial offer to get a sense of the condition of the property.

I know I can get out of the deal with inspection clauses, but it seems like a lot of hassel for the seller to accept my offer, take the property off the market, and then put it right back on if I find something I don't like that could have been avoided by letting me see the other unit.

Joe Fairless · Answer

@Sam Leon - interesting. If you can't see every unit then just have an inspection contingency like @Wade Sikkink mentioned. That will cover you but you'll also want to get the reason why they won't let you in and be willing to front the costs of inspection should the deal not happen. If you smell something funny then you could anticipate major rehabs on the units you didn't see so that you have that price point already agreed upon prior to inspection.

Jeff Greenberg · Answer

@Joel Owens I wasn't questioning the reason for the POF, I was just stating the fact that I have rarely been asked.

We always require the financials prior to traveling.

Joel Owens · Answer

Serge the key with Canadian buyers or any out of country is you have more hurdles to go through.

Foreign investors have a tough time getting financing on deal even with 50% down. The local and even some regional banks want an owner with boots on the ground that is local to feel good about things.

You can have a domestic llc, a local partner or sponsor etc. as possible work arounds. You can also look for seller financed deals as a foreign investor with the cash down.

If it's an out of the country investor or out of state I am getting some  requests for sellers not go under contract until the buyer has seen the property and looked over the books first. Some out of town investors say they want something and then come in and decide to low ball or they do not want it anymore etc. The sellers and listing brokers do not want to lock up properties unless the buyer is serious and have financing in place.

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John the cost will depend on what size of apartment building you are talking about 50,75,100,200 units??

Before dropping a bunch of money the FIRST thing I tell my clients is to validate the books. The last thing you want to do is spend all this money traveling, paying for appraisals, inspections, phase one's and find out the books are wrong. In that case the odds of the seller dropping to a price you are willing to accept is low and you eat the due diligence costs. If you verify books and then go into the other things then it's basically here is what inspection turned up and fix or reduce the price. A reduction might be better as you do not know the standard of repair an existing seller will use on  a property.

John Lin · Answer

What is the cost to the prospective buyer to during this phase?  If the buyer can not adequate believe/access the financials until due diligence phase, how much typically and what sort of costs should he expect to pay (monetary) in order to get to that phase?  Thanks

Seth Wilson · Answer

Wade,

Even if it was a 100 unit building it WOULD be feasible. For the same reason you would spend the time to look at all of the units in an 8 unit building, you don't know who or what is lurking behind those doors...

Wade Sikkink · Answer

On the 14 plex we bought last year, we saw the inside of 2 typical units before we made the offer.  The offer, however had an inspection contingency.  We hired a full building inspection done, then after that was done we personally walked through every unit with the inspection report in hand and looked at everything cited.  Of course, a few of the tenants were home and fussed a bit.  Others realized, "Hey, this is the new owner," and were very friendly.

After the inspection and our walk through we submitted an addendum to the offer reducing our offer price based on the list of items identified in the inspection report.  We gave the seller the choice of fixing everything on the list before closing or reducing the purchase price.  He took the lower price and the deal was done.

I would not, however, buy a multi-family unit without personally seeing inside every unit.  I suppose if you were buying a 100 unit complex that wouldn't be feasible, but anything less than 20 units or so I would see in them all.

How to make an offer on a MF without being able to see inside?

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