Multi-family: to make offer or not to offer

[Mark Choi]

Attention seasoned multi-family property investors: To offer or not to offer 100 units Asking price $8M 60% 12 mos leases 40% monthly leases Total 97% occupancy My underwriting with the assumptions of all the avg expenses looks great. 12.13 COC and 8.73 CapRate and strike price is $7.5M so there's a high probability of offer being accepted. The HUGE issue is that their actual expenses are off the charts. $121k over my typical expenses!!!! The seller has a chain of properties that they operate the same way - mix of monthly and yearly leases. And they tell me the expenses are high due to high turnovers. They also tell me that this particular property has been running this way for 16 years. And this is also the reason for selling. I do not know if the other properties' expenses are just as high. 1) If I take their word for it and use their high expenses, the numbers don't work unless I offer a lowball number, which they will most likely not accept. But do I anyway? 2) I can offer at near their price. Then assume to take over the property and bring down the expenses to the "norm" but what do I know about the short-term leases? Maybe they are running it the best way possible? 3) I can convert it to 100% yearly leases and run it the way I know how. But will my occupancy rate stay high? 4) Should I make the offer then get 100% lowdown during due diligence to make final decision? If you were considering to be part of the syndication, what would you think and/or ask? I truly would appreciate your thoughts. Mark H Choi ASOC