Newbie to commercial/multi-familes - when do I get rent rolls?

Question

Hi folks,

I have 8 doors in some duplex/triplexes and am looking to scale this year - I want to take the jump to a bigger building. I'm finding that most of the MLS listings (that I'm interested in) are a mess: missing or incorrect info, undervaluing expenses, etc... I know that I'll have to run my own numbers and not rely on theirs, but almost every property I'm looking at and inquiring about has not provided rent rolls, etc... and won't without an accepted offer. Is this common? Is there a good work-around? Are these not motivated sellers? Don't get me wrong, I love putting lipstick on a pig and I see a messy listing as an opportunity to be honest - if their books are haggard then cleaning them up and re-positioning will be even easier, right? But how am I to run numbers well without the info?

The other thing I'm finding is my agent is super focused on "will it finance" and giving me those numbers - and I know I can get something financed - I have a good track record, credit, capital, etc... I'm more interested in how it pencils and what the cash flow is...which again...is impossible to get without rent rolls. Time for a new agent or is this par for the course?

I feel like I'm going in circles -- any advice, mentorship, etc.. is welcomed. Thank you in advance.

Brandon Sturgill · Answer

@Christen G. Welcome to my world, lol...its reaffirming that the Central Ohio MLS is not the only market with these issues. We have the perfect storm of lazy misguided agents and a lackadaisical board that could care less if a shed is listed as a multifamily property. Until there is better oversight, you're not going to get what you need. That said, it sounds like your agent is not being very helpful....probably just not a good fit for what you are after.

And yes, "curb offers" are pretty common...most agents will force you into a contract even though they know if impending issues that will possibly kill the deal. As a general approach, your agent should at least ask for financials on the stuff you are interested in...otherwise, you may want to get familiar with a letter of intent when graduating to larger deals.

Sean O'Dowd · Answer

Welcome!!

There have been some great comments, but to add my two cents:

I'd request rent rolls and inspect them. You'll start to notice patterns to determine what is a "good" rent roll vs a bad. Many brokers will "stuff" a property by getting tenants in with a special but that might not show up in a rent roll. If you see lots of units rented within the last month, it's normally a sign that something is up!

Storm S. · Answer

@Christen G. Ima commercial real estate agent specializing in commercial multifamily, and It is not normal to make an offer on a property without seeing the rent roll

Tj Hines · Answer

@Christen G. Yes! Trailing 12 is nothing more than a technical term for profit and loss statement

Tj Hines · Answer

@Christen G. You need to get rent rolls asap, as well as a trailing 12. Without these 2 important docs there is no way possible, you can underwrite the deal to determine if it's worth the value they are trying to get for the property.

Bjorn Ahlblad · Answer

@Christen G. In my experience getting rent rolls requires an accepted offer-this let's the seller know you are serious. So just make it contingent upon inspection of financials and premises. The real negotiation takes place after that anyway. All the best!

Greg Dickerson · Answer

@Christen G. yes these issues are very common with mom and pop owners. Some are very reluctant to share financials and rent roles for various reason. You have two choices if this is the case.

#1 walk away

#2 educate yourself on the market, average rents, operating costs for different types of properties etc. Then run the numbers based on your assumptions and make an offer where it works for you.

Knowing your market and all the KPI, costs and fundamentals is key. And yes you should find a mentor or hire one if you can afford it as they will help you scale fast and without costly mistakes.

John Warren · Answer

@Christen G. welcome to the world of commercial real estate! You should know several things about apartment investing before you dive in too deeply. The first and most important is that the MLS is only one way (and probably not the best way) to find commercial deals. Most of the agents who put apartment deals on the MLS focus on residential real estate and do some commercial deals on the side.

Commercial real estate agents tend to market properties completely differently! In general, they do not use the local MLS and instead build their own buyer's lists. I am a very active residential agent, but as an apartment investor I still network constantly with the brokers who do most of the commercial deals in the area. They send me an offering memorandum whenever they have a new property that they think fits my criteria. It is my job to get as far up on their list as possible so I get the good deals early on.

With all that being said, I actually would rather buy a deal from the MLS. The commercial brokers give you a rent roll and a T-12 with the offering memorandum, but it is all garbage anyways. I almost never believe the numbers in the OM! At lease with MLS deals I can get lucky and find the occasional broker who doesn't understand what a cap rate is. I purchased a nine unit apartment building in Berwyn from a broker on the MLS a few years ago who literally had never heard of cap rate!

The last thought I would leave you with is that you will eventually need to be able to underwrite these buildings on your own so you can cut through the smoke and mirrors on the T-12, etc. At this point, in my target markets I can pretty much figure out what the expenses will be on a building without a T-12 and this allows me to put together a strong offer without any real info from the seller.

Christen G. · Answer

Thanks!. "Trailing 12..." is that just what it sounds like...?  A year's P&L?

Newbie to commercial/multi-familes - when do I get rent rolls?

Most Popular Reply