Things to look at on Quadplex showing and put contingency

[Jaekwan Lee]

Hi folks,

I am new on buying a property and trying to househack on fourplex property that is 40 years old(1980's). The showing is scheduled and as long as no big concern arises, I am going to make an offer. So I have a few questions. 

- What are the things to look for while we are in showing the property other than kitchen & bath room update?
- What are the typical/favorite contingencies do you add for four-plex property?
- Any useful questions to buyer/seller agents?

Here are some details about the property.
Price: 480k
Age: 1986
Rent: 1100 ~ 1200/unit
CoC: 3%
CAP: 7%

I am a first time buyer and house hacker so any insight are appreciated.

[Benjamin Aaker]

Good for you house hacking a 4 plex. In my opinion, it is the best way to get started in real estate investing. My advice: Use an agent who has experience in representing multifamily investors. Typical contingencies include finance and inspection. Also one allowing you to review the documents (rent roll, P and L, Tax returns, insurance claims history, 3rd party agreements, leases) which allows you to terminate the contract if you are not satisfied. Estoppel agreements are also handy though not used as much. Also include sewer scoping and an agreement from the seller that you are allowed to do modifications to the unit to allow the scope if you will pay to bring it back to previous condition. This is because sewer access is sometimes buried behind walls/floors.
Questions for buyer agent: Why is the seller selling? Are they interested in seller-financing? When do they want to close?

[Wale Lawal]

@Jaekwan Lee

A house hacking inspection checks for structural integrity, roof condition, plumbing, electrical issues, HVAC systems, windows, insulation, base and attic damage, unit conditions, and code compliance. Contingencies for fourplex properties include inspection, financing, appraisal, rental income, and pest inspection. Professional inspections, real estate attorneys, and property management are essential.

Good luck with your house hacking journey and feel free to ask for further assistance.

[Jaekwan Lee]

Quote from @Wale Lawal:

@Jaekwan Lee

A house hacking inspection checks for structural integrity, roof condition, plumbing, electrical issues, HVAC systems, windows, insulation, base and attic damage, unit conditions, and code compliance. Contingencies for fourplex properties include inspection, financing, appraisal, rental income, and pest inspection. Professional inspections, real estate attorneys, and property management are essential.

Good luck with your house hacking journey and feel free to ask for further assistance.

 Thanks for reply. Have one more question. To estimate offer price after showing, do you know what are the things to pay attention to look? I am still struggling to come up with offer price. 

[Jaekwan Lee]

Quote from @Benjamin Aaker:

Good for you house hacking a 4 plex. In my opinion, it is the best way to get started in real estate investing. My advice: Use an agent who has experience in representing multifamily investors. Typical contingencies include finance and inspection. Also one allowing you to review the documents (rent roll, P and L, Tax returns, insurance claims history, 3rd party agreements, leases) which allows you to terminate the contract if you are not satisfied. Estoppel agreements are also handy though not used as much. Also include sewer scoping and an agreement from the seller that you are allowed to do modifications to the unit to allow the scope if you will pay to bring it back to previous condition. This is because sewer access is sometimes buried behind walls/floors.
Questions for buyer agent: Why is the seller selling? Are they interested in seller-financing? When do they want to close?

 Thanks for the advice. I set my realtor who has only 4 years of experience but she does investing. it is hard for me to gauge how good the realtor is since I am also new/first time home buyer. 

[Alecia Loveless]

@Jaekwan Lee Not sure where you’re located or how applicable this will be but as I live in northern New England this is a big concern for me.

I always look at the heating source and try to determine if it can be broken out to where the tenants pay for their own heat. If it’s not that way already.

If you live in warmer places this probably isn’t

An issue as much but I’m done with the variable factor of tenants putting the heat on 80 degrees and then leaving windows open when it’s -25 out.

I’d personally rather receive a little less rent and have the tenants cover this cost.

Also look under the kitchen sinks to see if there’s been leaking or if the plumbing looks hacked. While this isn’t usually any reason to back out of a deal it’s a good idea to know up front. Leaky kitchen sinks can lead to ruined kitchen cabinets.

[Wale Lawal]

Quote from @Jaekwan Lee:

Quote from @Wale Lawal:

@Jaekwan Lee

A house hacking inspection checks for structural integrity, roof condition, plumbing, electrical issues, HVAC systems, windows, insulation, base and attic damage, unit conditions, and code compliance. Contingencies for fourplex properties include inspection, financing, appraisal, rental income, and pest inspection. Professional inspections, real estate attorneys, and property management are essential.

Good luck with your house hacking journey and feel free to ask for further assistance.

 Thanks for reply. Have one more question. To estimate offer price after showing, do you know what are the things to pay attention to look? I am still struggling to come up with offer price. 

 My pleasure!

You can determine a competitive offer price for a property, analyze market trends, property condition, income potential, and operating expenses. Comparing current rent with market rents, vacancy rates, and additional income sources helps estimate costs. Calculate operating expenses, including property management fees, maintenance, taxes, insurance, and utilities. Analyze financing and cash flow to assess return on investment. Consider past appreciation rates and bargaining strategies to make the offer more appealing.

Good luck!

[Scott Mac]

You could have house inspector inspect it. Try to find one who specializes in Quads if you can. 

This will cost a bit, but you will be provided with a written report of the things they find wrong. Although don't expect them to find everything wrong because sometimes they do not.

In addition to this you should also walk all of the units.

Hey particular attention to the age of the roof, the number of roofs nailed down upon other roofs.

Pay particular attention to the sewer system. Having a sewer cam inspection might be a wise idea.

A particular attention to the electrical system. Is there enough capacity for each unit in modern times. As well as how old is the electrical system is.

Utilities Perry in space does each you didn't have a separate electrical meter, water meter, gas meter, furnace, AC system, water heater, or is there just one of each for all of the units. How old are these replacable units, are they at the end of their Service life.

Pay particular attention to who the renters are in place. Many people like to do a lease audit with estoppel certificates. Are any of the renters problem renters, such as drug dealers, or super annoying renters such as someone who plays loud music at full blast all day long - or hangs out Windows screaming at the neighbors - to the annoyance of the other renters you have.

That and many, many, many other things.

Good Luck!

https://www.youtube.com/watch?v=cxE3oh5fZXA

[Drew Sygit]

@Jaekwan Lee see copy & paste below:

Purchase Agreement Clauses for Buying Tenant-Occupied Rental

If you’re considering buying a tenant occupied rental property, there are some documents you want to acquire for review prior to
the closing. Once the closing takes place, the seller has zero incentive to cooperate with supplying them.

Not only do you want to obtain these documents, you also want time to review them well before the closing because unfortunately,
there’s always the potential that one, or several, of the documents may be fraudulent.

So, let’s go over each document and why it’s important:

1. Lease: this one should be obvious. A lease is a contract between the landlord and tenant. It spells out the monthly rent,
when it’s due, the length of the lease (or term), should contain clauses required by the federal and state governments, and
much more. Without the lease a buyer has no legal means to collect rent from a tenant or evict them for nonpayment.
2. Rent Ledger: this is a record of all tenant charges and payments. It proves if the tenant is current on their rent and their
history of whether they’ve paid on time or not. It should also show any security deposit collected, pet fees, cleaning fees
etc.
3. Tenant Contact Information: current phone number and email address are needed to be able to communicate with tenants.
4. Tenant(s) Government Issued ID: typically, this will be a driver’s license to prove the identity of the tenant(s). Without, you
have no way of confirming the occupants of the property are those named on the lease. Proper identification of tenants is
also needed if you want any chance of having local code enforcement write tickets against the tenant and not the owner.
5. Any Legal Action Documents: you’ll definitely want to know if the current landlord is evicting or suing the current tenant(s).
6. Tenant(s) Social Security Number: this should have been obtained by the current landlord to do a background check during
the application process. A new owner will need it if they want to pursue collection and garnishment for unpaid rent and/or
property damages.
7. Tenant(s) Employment & Bank Information: additional information useful for garnishment actions to collect unpaid rent
and/or property damages. Usually collected as part of the application process.

Fraud: let’s not pretend it doesn’t happen. Desperate sellers do desperate things. We’ve seen fake leases and rent ledgers, even fake
tenants - who were placed by the seller to backup the fake lease and ledger. So. it’s not uncommon to request proof of rent deposits
via bank statements and corporate/LLC tax returns. Of course, it can be almost impossible to validate any rents the seller claims they
collected in cash. So, sellers can also be asked to sign notarized affidavits personally guaranteeing the validity of leases and ledgers.

So now, let’s get to the clause to include on your purchase agreement to make sure you get all this information in enough time to
review it.

Seller(s) agrees to provide the following to the buyer within X days of buyer’s satisfactory inspection, but in any case at least
X days before closing: All rental leases, rent ledgers, tenant(s) valid phone numbers and email addresses, rental applications
& supporting tenant identification, income and asset information, any documents corresponding to any ongoing legal
actions pertaining to the property, leases, service contracts, etc., at least three (3) months of the most recent bank
statements for any account(s) rental funds were paid into and any company or corporate tax returns for proof of income and
expenses. Seller(s) also agree to sign an affidavit at closing personally guaranteeing the validity of all leases and rent
ledgers.

Now that may seem like a lot for a seller to agree to, but if they have nothing to hide, why would they not agree?

As always, none of this should be construed as legal advice and we recommend you consult a real estate attorney.