Frustrations with Seller Inaccuracies

[Dee Malkerneker]

I’m currently evaluating my second multifamily property and have discovered major inaccuracies from the seller provided material. With the first property the seller provided rent rolls showing 100% current occupancy and stated 95% average for past year. When I did the walk through the actual occupancy was 85% and by examination of the leases and the condition of the property that’s what it clearly averages. To get the same cap rate the purchase price would have been about 400k lower so the deal was a no go. The second property the seller originally stated the flood insurance was 6k less that what it really is. This plus other under reporting of expenses would mandate about a 300 k drop in price to get the agreed upon cap rate at purchase. While I’m glad I caught this stuff during due diligence it’s beyond frustrating. It’s a waste of everyone’s time and initial lawyer fees (for purchase contract). Is anyone else encountering this? How do you avoid it? Are people able to obtain schedule Es ect prior to due diligence?

[Will G.]

oh my goodness, people lying to make money!:-)

This is the new normal, and there is no end to the newbies who will pay too much for a property. We are having a bit of a multi bubble and the inexperienced who pay too much now are going to cause the distressed sales of tomorrow. Congrats on being thorough and avoiding extra risk. Please just figure on 50 percent expenses regardless of what the seller comes up with.

I read a great post, guy bought brand new house, rented it for 12 years to one single tenant, and at the end of term all the things needed fixed/ replaced totaled more than $20k! He did not make a dime on the rent but did benefit from the loan paydown only! His advice... always count on 50% for expenses.

Most sellers today are"fishin for idiots",  so dont be one.