New Investor Under Contract for first Deal

New Investor Under Contract for first Deal

(Health Insurance) Behavioral Health Representative · Belleville, NJ · Member since 2015 · 7 posts · 2 votes

Hi, I'm a new real estate investor who is currently under contract for my first duplex in the metro Cleveland, Ohio area. The property is currently 100% rented. I used many different scenarios in my analysis of the property and it looks like it could cash flow anywhere from 250-300 per month. However, I'm running into some obstacles in the "due diligence" stage of the process. I've requested the rent roll, expense report, and the leases of the current tenants from the owner. I was told I had to contact the current property manager to request the information. I've been given the run around from the property manager on why he can't release the information to me. Finally, my real estate agent tells me the owner is basically not willing to give authorization to release this information to me because all the numbers were provided in investment document on the MLS. My gut tells me not to trust those numbers and confirm everything. I can't walk away from the deal though without losing my earnest money for this reason because I didn't include it in my contingencies when I made the offer.

I plan to have the tenants complete an estoppel agreement to find out what the current terms of each tenants lease. Is there any others ways to go about obtaining the rent roll and expense report? Is there anything else I should be considering? Or am I making a bigger deal than I should about this? Any advice is much appreciated. All I want to do is confirm that my analysis was correct based of the information that was listed on the MLS.

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Real Estate Agent · San Jose, CA · Member since 2016 · 12 posts · 4 votes
10y

Use any contingencies that you do have in place to walk away if you so choose. Buyers Inspection, Loan, appraisal, ANYTHING. Buyers Inspection Contingency is your time to do your due diligence and if you don't like what you see, or in your case "NOT" what you are seeing, you should be able to walk and recoup your deposit. Your realtor should be able to ALWAYS find a loop hole in the contract to get your deposit back.  If not, you may need a new agent, or have him or her consult with their broker of record for advice as how to walk away and keep your deposit. 

Rents are easy to get. You can ask tenants what they are paying (you can always increase rents if they are below market rate), get your meters read to see how much utilities are, and your realtor can find out in a REALIST report what the tax assessment is.

Good luck!

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  • Real Estate Agent · San Jose, CA · Member since 2016 · 12 posts · 4 votes
    10y

    Use any contingencies that you do have in place to walk away if you so choose. Buyers Inspection, Loan, appraisal, ANYTHING. Buyers Inspection Contingency is your time to do your due diligence and if you don't like what you see, or in your case "NOT" what you are seeing, you should be able to walk and recoup your deposit. Your realtor should be able to ALWAYS find a loop hole in the contract to get your deposit back.  If not, you may need a new agent, or have him or her consult with their broker of record for advice as how to walk away and keep your deposit. 

    Rents are easy to get. You can ask tenants what they are paying (you can always increase rents if they are below market rate), get your meters read to see how much utilities are, and your realtor can find out in a REALIST report what the tax assessment is.

    Good luck!

  • Medina, OH · Member since 2016 · 24 posts · 7 votes
    10y

    I agree with @Eric Clayton that there should be a way to walk out.  If not, you may need to try to weigh the value of the earnest money with the possibility of a bad deal.  Your agent should also be working with the listing agent to get you the rent rolls - he/she should know this is one of the first things needed to close the deal.

    I'm also interested in the Cleveland area - West side.  Where are you investing?

    @Eric Claytonundefined

  • Investor · Pembroke Pines, FL · Member since 2016 · 37 posts · 25 votes
    10y

    Maurice

    This is a duplex the numbers are easy to calculate even if the owner did not provide. I do believe you know this info but I will list it for ref purpose

    The only expense you would have should be the following 

    Water & Sewer call Cleveland water they should help. I have my costs average $40 to 50 per month per unit. 

    Taxes - you get that from County website

    Heat - if central system it's yours to pay - if each unit has its Furnace which is typical in Duplexes then it's tenant cost.

    Hot water, if you have a central heater it's your cost but not typical usually you have 2 hot water tanks (1) to serve each unit. 

    Landscape is 60$ per month for a duplex

    Snow plow $500 per season

    Rent - you can ask the tenants  and you should be able to get copy of leases unless tenants are month to month and lease expired years ago. Rents I usually get in Duplexs in West Cleveland is around 600-650 per unit that are 2/1. 

    In duplex there isn't much of unknowns but your right you should get financials. If you don't feel comfortable, like all others said, pick any contingency you have in your contract use it and walk away. The easiest one should be inspection period where you walk away after you just do your walk thru inspection.

    Good Luck

  • Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    10y
    Originally posted by @Maurice White:

    Hi, I'm a new real estate investor who is currently under contract for my first duplex in the metro Cleveland, Ohio area. The property is currently 100% rented. I used many different scenarios in my analysis of the property and it looks like it could cash flow anywhere from 250-300 per month. However, I'm running into some obstacles in the "due diligence" stage of the process. I've requested the rent roll, expense report, and the leases of the current tenants from the owner. I was told I had to contact the current property manager to request the information. I've been given the run around from the property manager on why he can't release the information to me. Finally, my real estate agent tells me the owner is basically not willing to give authorization to release this information to me because all the numbers were provided in investment document on the MLS. My gut tells me not to trust those numbers and confirm everything. I can't walk away from the deal though without losing my earnest money for this reason because I didn't include it in my contingencies when I made the offer.

    I plan to have the tenants complete an estoppel agreement to find out what the current terms of each tenants lease. Is there any others ways to go about obtaining the rent roll and expense report? Is there anything else I should be considering? Or am I making a bigger deal than I should about this? Any advice is much appreciated. All I want to do is confirm that my analysis was correct based of the information that was listed on the MLS.

     I think you are making a bigger deal than you should be on this one. It's a duplex, rent rolls and historicals really shouldn't be the determining factor when deciding to buy or not. There is only two tenants in the property at any point and time the investment could take a serious turn for the good or bad. What you should focus on is the comparable sales and market rent ability and rates. You are buying the property and tenant base that comes with it, not the two existing tenants.

    Also another thing to consider is that duplexes are not often ran by "professional" landlords. Many times you are buying these from owners who do not even know what a rent roll is.

  • (Health Insurance) Behavioral Health Representative · Belleville, NJ · Member since 2015 · 7 posts · 2 votes
    10y

    Thanks everyone for the advice. I'll definitely take everything that was said into consideration. 

    @Nathan Klettlinger I'm investing in Maple Heights. My family has been there for years and I know the area. 

  • Realtor · Cleveland, OH · Member since 2015 · 2k+ posts · 857 votes
    10y

    Is the property in good condition? Do you need to invest money into the property?

    Seems like your worrying about something very tiny. You don't have numbers? soon as you take ownership the tenants could stop paying and then the numbers wouldnt even matter.

    Taxes you can find out easily. Electricity and Gas you can do an average. This is not  a stock your buying, your buying an asset with many variables, that are constantly changing. If your freaking out now just imagine what happens when your Property Taxes go up or Cleveland Water decides to increase it's water pricing. Worry more about the condition and quality of the property

  • Investor · Austin, TX · Member since 2015 · 58 posts · 16 votes
    10y

    It is interesting the seller does not want to disclose information.  It does make the deal a bit fishy.  To others who have told you that "you are making a big deal" ... it really boils down to why is the seller making a big deal of giving you information.  Especially the current renter's lease information.  It is not advisable to purchase property and inherit a lease you have not reviewed.  It is a big deal.  Perhaps the lease says the tenant's next 5 years of monthly rent is $1.53!

  • Real Estate Agent · San Jose, CA · Member since 2016 · 12 posts · 4 votes
    10y

    I work in the bay area, California. 

    @Nathan Klettlingerundefined

  • Real Estate Broker · Cleveland, OH · Member since 2015 · 255 posts · 248 votes
    10y

    @Maurice White It's too late now, but you should have your offer contingent on reviewing leases and getting estoppel agreements signed, as well as other things that protect you when things arise and rents are not what they had previously been stated to be. I don't do this often for my investors who seek a duplex, but definitely a must for anything 4-units and more.

    Your agent should have advised you to include such terms, as well as provided you with property taxes and approximate utility expenses in that area. If your agent isn't performing, maybe look for one who works with investors on a regular basis. Knowing Maple prices, you should cash flow just fine even if current rents were a bit under market rents.

    You can cover your end with getting the estoppel agreements signed. Don't back out if the tenants cooperate and sign, they're held responsible for writing in the correct information.

    If you really need to back out, Maple Heights has a point of sale system which requires you and the seller to agree on assumption of mandatory repairs that come up on their inspection report. You can use that as another way to break away from the contract.

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