Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Multi-Family and Apartment Investing
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated over 7 years ago on . Most recent reply

User Stats

25
Posts
12
Votes
David Calme
  • Investor
  • Sterling Heights, MI
12
Votes |
25
Posts

First Building - Looking for Advice

David Calme
  • Investor
  • Sterling Heights, MI
Posted

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.

    Most Popular Reply

    User Stats

    328
    Posts
    124
    Votes
    Michael Ohara
    • Investor
    • Hawaii
    124
    Votes |
    328
    Posts
    Michael Ohara
    • Investor
    • Hawaii
    Replied

    Utilities seem low.  Who pays water, sewer, gas?  Can you negotiate lower management fee since it's all under one roof? Maybe 7-8%.

    Loading replies...