After looking for a building local to my area with a decent potential cash flow, I have found a 19 unit building in a rather remote northern suburb of Detroit (Northern Macomb County for those of you that know the area). Upon working with a buyer broker who is a friend of your family, we have a verbal agreement to draw up PSA based on a set price point.

There are some questions that I have regarding the process, thus far, and what to demand in the PSA regarding the due diligence period.

In this market, is it standard for a seller to refuse to release the true profit and loss documents until after a PSA is signed? Of course, the due diligence would have plenty of provisions for obtaining and analyzing the P&L (Tax forms, utility bills, service contracts, etc), but I of course would have liked to have seen these numbers before spending the time, effort, and money needed to determine what the seller is holding back. I have a rent roll but, the expenses are based a combination of pro forma numbers, adjusted to my version of what they should be, and research that I could do ahead of time (County property tax records, insurance quotes from my agent who insures my SFRs, asking service providers for an opinion, etc). Should I demand seeing the P&L before entering into due diligence?

I don't want to end up getting a reputation for retrading after the face, but I'm sure that I will find at least a few surprises, when I go through the documents and the physical inspections.

Numbers
- Purchase price $875,000
- Units 19 2 Bedroom
- C Building, C Neighborhood, Low crime, Rural within driving distance to metropolitan jobs
- Gross Rents (Rent Roll) - $10,600/month
- Less 5% Vacancy - $120,480/year
- Management @10% = $12,720
- Legal, Marketing, Administrative (My Estimate) - $1500
- Landscaping and Snow Plowing (Pro Forma) - $2,631
- Other Maintenance and Repairs (Estimate based on 10% total M&R) - $11,481
- Utilities (Common areas only Pro forma) - $1,069
- Total Operating Expenses - $52,013
- Expense Ratio 41% of gross scheduled
- NOI - $68,827
- Operating Cap at Purchase Price - 7.87%
- CapEx Reserves (Not included in NOI) - $300/unit per year

Does anything seem out of place, based on these numbers? The expense ratio may seem low, but it is a newer building and currently 100% occupied (rents are being held low to keep occupancy up, relative to surrounding propeties).

Any input would be greatly appreciated.

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