getting proof of rents on multi-family. what am I asking for?

Question

Hi,

Im looking at a 5 unit. Asked agent for financials. to SEE if what they say they are getting for rents are REALLy what they are getting.

Agents answer: no but its a no brainer, its a money maker.

Really?

I did this through email, so I know she couldnt see a big L on my forehead or one of those.. what do you call them.. dunce hats.

Thanks,

Mary

Penny Clark · Answer

@Mary D., I'm assuming this is the listing agent you're referring to, right? The only way to be sure is to ask to see the income statement or tax return, which many owners won't want to give out if they are not being honest. Many agents out there may not know what a moneymaker is because they fail to include all the calculations such as vacancy, repairs, cap expenses, etc. Before I'd buy anything, you're going to want to see the leases and payment history (so you know what is in them), estoppel certificates ( tenant agrees in writing what rent is they pay, what security deposit was they paid and other financial terms), six months of utility bills and make sure the building is insurable.

If you have no idea on what the rents are, what the payment status is of each tenant, you can't do a proper assessment. I've seen some owners do huge rent increases just prior to putting their building on the market to make their bottom line look good. Oftentimes if the tenants know it's up for sale, they'll stop paying rent or pay partial rent - how would a buyer know this without written records?They won't.

Unless you have the numbers from their tax records, or an accountant's expense/income report, you're buying blind. If you decide to risk it and buy it, make sure you get all inspections done and get an accurate assessment on market rate from a property management company

Account Closed · Answer

First start off asking for the Rent Rolls.  And @Penny Clark is absolutely right. Many owners of this small a unit typically don't have very good paperwork. But for sure ask to see the leases and their bank statement so you can create the Rent Rolls.

Mary D. · Answer

Hey @Bill McCartney the demographics is what I want to look at no matter what property, if its out of familiar territory. Thats all. I like to research and look at everything.

Agent very confident with empty answers. So Im not counting on the her at all! Good point about the cash to carry the place if I have to or want to evict right off the bat. The agent says all apartments are rented but not the store front. So I will find out one way or another.

Account Closed I have the monies to close but Bill has a good point about carrying the rents. I dont have a ton of cash to work with yet and figured I would have to do some updating whether cosmetic or other. Im subdividing land so I will have more cash but when... ???

Yes the agent is cocky and asked me what I expected for that price? Shes obviously missing the point.

Thanks for your feed back. I appreciate it!

Mary

Account Closed · Answer

The property has been on the market for so long because this agent is not taking you seriously and not working in the best interest of the seller. Convince the agent you have the ability to close this deal (you do, right?) but your offer is based on actuals, not a no-brainer proforma. Good luck.

Bill McCartney · Answer

I'm not sure I understand your question about demographics. I would think more important would be what market rents are in the area for a building such as the one you're looking at. If you know what to expect for rent, the current rents don't so much matter. At 125K, you probably only need two or maybe 3 units rented to cover your expenses.

Based on their evasiveness, I wouldn't count on the current tenants. Make sure you have the cash reserves to pay expenses until you get a couple of units turned and leased up. If say 3 units are occupied with marginal tenants, they might cover half of your expenses. You can get your own quality paying tenants in the 2 vacant and slowly weed out the other 3. That's my normal course of action.

Mary D. · Answer

Hi @Penny Clark, Yes its the listing agent. She said there was a inspection in 2015 when it was under contract. Inspection was strucual, mold and lead. Didint tell me the results just said it wasnt what prevented the buyer from buying. It was something that had nothing to do with the building.

After asking alot of questions agent said the buyers have owned it for ten years and dont want to deal with it anymore. doing my due diligence I looked at county records that shows sold for $70K in 2013. Its listed for $125k DOM over 400. Agent says owners have gotten low ball offers and are not interested.

Agent also commented quote... " it's a 5 unit for $125K. Sellers are looking for a serious buyer, this is not a high end property, so I am not sure exactly what you are expecting in this price range! But the numbers work and the last buyer was fully excepting of the building's condition".

Im getting a little irritated but will continue to look into it. Theres got to be a reason its been on the market for over a year!

Question to all of you, What am I looking at as far as demographics??? Market to justify buying. I live about an hour from this town. Not too familiar but have looked at the town site for demographics.

Appreciate your feed back!

Mary

Jeffrey Levy · Answer

For the time that you are not in contract, you have to take the landlord's word.  When drawing up a contract, your attorney should make sure that there is something in there that will answer assure you beyond a doubt.  Look at leases, start and end dates, deposits and credit reports (and more?)

getting proof of rents on multi-family. what am I asking for?

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