Verifying Rental Income

[Jennifer M.]

Hi everyone!  When making an offer on a MF property, is there any way to verify the rental income that the seller claims to make on the property?  Is it appropriate to ask for tax returns?  This is a small 8 unit property and the seller is apparently "old school" and collects rent in cash/money order and keeps hand written records.  Come to think of it, he might not report all of the income on his tax return anyway.  I guess the only thing I can do is check out rental comps in the area and see if they are reasonable.  I just don't want to get stuck with tenants who don't pay rent on time/leases that don't exist/rent amounts that are lower than seller claims, etc.  I guess these are just the risks you take when investing in tenant occupied properties, though!  Anyone have any advice to offer?

[Michael Le]

Yes, it is appropriate to ask for the tax returns. You won't get it now but after you submit the LOI and they accept then you can ask for it during the due diligence period. If he's not paying all of his taxes then that's his problem. You should base your offer off of verifiable income. There are risks involved with any investments but you should mitigate those risks as best as possible. Which includes not overpaying for a property based on potential. You should be paid and paid well to get that property up to the potential.