Determining ARV, Due Diligence, & Building a Team

[Ben Clark]

I've done valuation analysis and due diligence on businesses before. The only real estate I've purchased to date has been for my primary residence.

I am looking at an 8 unit multi family which is about 6500 sq feet. I have driven past the property and seen photos of the outside only. The seller has sent me an excel file which is basically a pro forma income statement.

The monthly numbers are as follows:

Income: $5700

Repair & Maintenance: $200

Insurance: $200

Property Tax: $800

Gas: $100 (seems low to me for an 8 unit)

Electric: $100 (seems low to me)

Water: $75 (seems low to me)

Garbage: $60

NOI: $4165

Is this missing any numbers that I should be including (beside) debt service? I'm able to calculate a property value if I input a CAP rate on this NOI. What do you all find is a typical CAP rate on a deal like this?

I've found it hard to comps on a property like this, but I haven't contacted an agent and perhaps they could help me better with that.

My question is what is the process to determine ARV? What is acceptable to ask the seller before making an offer and providing EM? Normally when analyzing a business, I would ask for income statements for the last 3 years and possibly even tax returns at this stage. After an offer, in due diligence phase, I would request all the details for example, vendor invoices, sales orders, etc.

At what point is acceptable to ask the seller for tenant agreements, copies of utility invoices, etc? When is it acceptable to ask to see the inside of property? What else do you ask for?

My other question is about when do I involve each member of the team? I haven't spoken with any mortgage brokers, but I'm pretty sure I would get financing.  What I'm unsure about is what kind of rate I would get on a deal like this.  I think it requires a commercial loan?

I have agents I've worked with on the purchase of real estate for my primary residence before. I have contacts that I, or family, has used for lawyers and CPA's. I'm unsure about if I would need to use property management or not yet, I want to find out more from the seller about how they have been managing the property. At what point should I involve each of members of the team? What fees should I expect to pay to each member of the team, and I realize this varies but I'm trying to get a ball park.

I want a CPA to advise on tax strategy. I want an attorney to oversee all aspects of the transaction, lease agreements, as well as form an LLC or Corp.