Going out to see a 4plex

[Alesha Rayford]

hello BP in about two hours I'm going meet an agent to look at a 4plex right around the corner from where I live. I'm nervous and excited at the same time. The plex is listed for 200,000$ With three rented out for 1050 a month.. I haven't done the numbers yet because I'm not to familiar with it (newbie here). It did say it has a 21%. Cap rate. I am hoping I can get a fha loan to get the plex. My question to you all what are some good questions to ask the agent? I am in the New Orleans east area by the way :).

[Michael Wolffs]

Alesha,

Before you do anything, you need to go over the process of how to execute a commercial real estate transaction.  Part of that process, and something that should be built into the sales contract, is what's know as the "due diligence period."  This is a period when you can inspect the property and records, and if you don't like what you see, back out of the deal.

Before the sale, brokers and owners will make all sorts of representations as to the condition of the property, and it's financial situation.  These can be complete fiction.  You can ask for documentation.  But before a deal is made, they may or may not give you anything.   This is the tire kicking phase.  However once you've gone to contract, and given a deposit, they now know your serious, and if they don't give you the documentation you want, you'll back out, and they'll have to find another buyer.  

As soon as the contract is signed, you can give them a list of everything you want.  You'd include things like, Annual financial statements for the last two years, current up to date financials, copies of all the leases, copies of the last years bills, copies of the last years bank statements, copies of contracts in force on the property, and more.  You'll need a good accountant and lawyer in this process, they can give you a full list.  This is also the period where you'd have the property inspected by a professional inspector/engineer.  By the time your done, you should have a good idea of the true financial and physical state of the building.  You MUST get this done before the end of the due diligence period (usually thirty days.)

It' is somewhat likely what you find will not match the representations made prior to the execution of the contract.  Between the accountant, the inspector, maybe a contractor, and yourself, you can put a dollar amount on the discrepancies.  You can then go back to seller/broker, show what you've found, and demand either an adjustment to the price, a payment back at closing, or some combination of these, totaling the amount of the discrepancy.  If they do this, you proceed with the deal.  If they don't, you have to decide whether to cancel the contract and walk away, or not (at your option.)