What do you think of this seller's Schedule E...

[Jean Bolger]

I was looking at a group of 4 fourplexes as a package deal. I had done my projections (yay! 50% rule) and things were looking good. Showed it to my lender, things were looking quite good. (yay!) Then, I get the seller's Sched E for the past two years, which has him at a whopping 73% expense ratio- yikes. So, basically, I am asking you more experienced folks if these numbers look likely. I understand the insurance, management, and taxes, those are what I expected- but the rest seem way high

Anyway, with a a gross annual rent of around 90k they are paying:

10% cleaning and maintenance
4% insurance
10% management
17% repairs
11% taxes
18% utilities (This is with 13 of the 16 units paying their own utilities, except water)
3% other (??)

These are basic brick, shingled roof fourplexes, built in 1976, w/ all electric utilities.

I can imagine three possible scenarios here.
1) The place is just a money pit (but why?)
2) The guy's getting soaked by his management
3)- the most awkward option!- he's being less than truthful w/ his Uncle Sam

anyway, this Schedule E probably blows my chance of financing this deal unless I can get it for less than half the asking price. But I am curious as to what you all might think and any suggestions that might come up about a way to proceed.

thanks!

[Kurt K.]

If you can't figure out how to add everything back, just use the 73% expense as a valuation point for a lower offer. If the seller says it is too low just explain if the expenses are so high per year this is what it is worth, maybe they will "unravel" the assumed "increased expenses for tax purposes" for you. Just a thought if you cannot decipher it yourself.