What documents to ask for before buying property

[Zach Shrader]

Hello all, I'm looking at an 11 unit multi family in the Ohio area. 9 units are 2 bed 1-1/2 bath and 2 units are 2 bed 1 bath. I know there's some obvious things I need to ask for like the rents and stuff. But should there be any documentation on like expenses and profits and losses or anything else anyone can thank of??

[Andrew Cushman]

@Zach Shrader, just get everything you can ;-)  Seriously, here's the list of what I ask for:

• a)Schedule E tax statements (if applicable)
• b)Trailing 12 Profit/Loss
• c)2015 and 2016 Monthly Profit/Loss
• d)Personal property list
• e)Inspection reports – any that have been done previously
• f)6 months operating account bank statements
• g)Current Lease Agreements*
• h)5 Year insurance claims history (loss runs)
• i)Current contracts—i.e.-landscape, management, trash, pest control, etc.
• j)Full documentation of security deposit account
• k)Property tax assessments
• l)Current rent roll
• m)Most recent 12 months of bills for water/sewer, gas, and electricity

a - depending on how the property is held, the seller may or may not have this

b & c - basically, I'm trying to piece together 3 years of financials, as this will give lenders greater comfort and give you and idea of any trends.

d - this is a list of the personal property that comes along with the asset: office computer, copier, leaf blower, etc.

e - some sellers may have surveys, Phase 1 Environmental, old appraisals, etc.  Not all do, but if they have them - especially the survey and Phase 1 - it makes your life a lot easier.

f - you want the bank account statements so you can compare them with the P&L.  Do the monthly deposits roughly match the monthly income reported?  What about expenses?  This will be tougher if the property doesn't have a dedicated operating account or if the seller comingles funds.

g - I like to see a sample lease up front, but the main point is that when you do your site visit you will audit ALL of the leases.  Very important.

h - this will tell you how many insurance claims have been paid in the last 5 years, what they were for, and how big they were.  This helps you get a more accurate insurance quote, and gives you an idea if you might have trouble getting insurance (or if there is a recurring issue you want to avoid).

i - the most important contracts are any you might be required to assume. The rest can be helpful in verifying expenses.

j - this is often on the rent roll, which should suffice. You just need to know how much is being held for tenant deposits, as this will be transferred to you at closing, and then you are liable to the tenants for it.

k - not only is it important to know for certain how the property is currently taxed, it's even more important to know how it might be reassessed after you buy it!

l - pretty self explanatory

m - this is another one I consider to be highly important.  Utilities can be one of your biggest expenses, and it is critical to verify actual billing against the P&L.  I once found a seller who was under reporting water on the P&L by $50,000 annually!

Few sellers will have all of this stuff, especially the smaller ones.  However, the more of it you can get the better off you will be and the less risk you will be taking of getting hit with a surprise down the road.

When do you ask for this? You of course need the T12 and rent roll to perform your initial analysis and make an offer. Most of the rest of it can be obtained during the due diligence period.

I hope this helps!

Andrew