All Forum Posts by: Sharon Tzib

Your broker (if he or she is any good) should know the exact process for this, and knowing your new, would have hopefully been advising you of next steps.

But in any purchase agreement, there is a due diligence period where you can review any aspects of the property, from physical to financial and so on. Have your agent send a request to the seller's agent requesting, at a minimum, the following things:

Rent Rolls

?Leases

?Estoppels (near close of escrow)

?Bank Statements

?Credit Card Statements

?2 years Tax Returns

?2 years Utility Bills

?Property Management Reports

?Invoices for recent capital expenditures

If others on the forum have anything else to add, I'm sure they will.

Your broker (if he or she is any good) should know the exact process for this, and knowing your new, would have hopefully been advising you of next steps.

But in any purchase agreement, there is a due diligence period where you can review any aspects of the property, from physical to financial and so on. Have your agent send a request to the seller's agent requesting, at a minimum, the following things:

Rent Rolls

?Leases

?Estoppels (near close of escrow)

?Bank Statements

?Credit Card Statements

?2 years Tax Returns

?2 years Utility Bills

?Property Management Reports

?Invoices for recent capital expenditures

If others on the forum have anything else to add, I'm sure they will.

Hey Taylor - my pleasure to help you out. No, you should not be trusting at all of the seller's numbers. In fact, the best money you'll ever spend is hiring a CPA or Attorney who specializes in analyzing tax returns, P&L's, etc. for MFH investing, especially in the beginning of your investment career.

What you want to do is take their P&L's and compare them to their tax returns (at least two years worth). It is rare a seller will over-report income on their tax return, so this is a great place to catch them if they are trying to over state their numbers. Also, get bank statements. Make sure those rents have been deposited in equal amounts to the monthly rents they are claiming. And the lease amounts need to match too.

In regards to expenses, ask for as many years of utility bills. If they have a property manager, get their reports. Also don't forget to ask for credit card statements.

Amanda Han, a CPA, has written several excellent posts on due diligence very recently here on BP - you should search for them. Be sure to read not only the posts but the comments - priceless stuff in there.

Remember, trust no one and verify everything!!!

Hi Jason! Welcome to BP. I'll be moving to Houston soon too. Maybe we'll cross paths one day. Good luck!

Hey Matthew - yeah, sorry, I missed the "DINK" comment. Even so, my advice stands. Before you do anything, save up enough reserves to cover 6-9 months of living expenses should something catastrophic happen. And you will need reserves for each property you purchase too. I know a lot of people think it will never happen to me, but there's something to be said for sleeping at night. Jeff Brown on this site calls it his "Sominex" account haha!! Trust me, you don't want to learn the hard way on this subject.

Hey Taylor! I don't pretend to know 1/10th of what Dion does, but I will try to chime in with some of my thoughts on your questions:

Q. Should I lower my operating expense projections which would give me a higher NOI that would let me raise my offer? (currently using 60% for operating expenses because owners, for the most part pay water/sewer/trash)

A. No, absolutely not! First, most investors on BP, whether they are single family or MF, use the 50% rule as an initial test to see if something is worth pursuing or not. This is especially true if the owners are paying any utilities, as these can be deal killers and an everlasting drain on your cash flow should you buy. Second, if at all possible, try to get actual numbers from the seller before making your offer (and make sure it's not proforma). I really can't imagine making an offer if I didn't have this in front of me first.

Q. Should I add more money to the down payment to insure cash-flow? (Instead of 25% down, put 40% down)

A. No. Someone much wiser than me taught me never to inject more money into a deal to make it cash flow. Run your cash flow projections as if you are getting 100% financing, even if you’re not. That way you are not forcing cash flow into the deal by paying more for financing.

Q. Should I just become comfortable taking a lower cash-flow?

A. No, I think you should become more comfortable with doing less deals. Some guys on BP only do one deal a year because they refuse to compromise on their criteria. Also, you may have to go to alternative methods of finding sellers, instead focusing on motivated ones, where your criteria will be more acceptable.

Good luck and I hope this helps some.

Yes, Elisabeth - born and raised in Northern Cal. Moving to Houston end of the year. Guess we're following each other :)

Welcome, Lisbeth! So awesome you are teaching your daughter about investing so young. Wish my parents had done that with me. Good luck!

Taylor, Paula Pant just wrote an excellent blog on this topic:

http://www.biggerpockets.com/renewsblog/2013/07/24/adjust-rent-for-inflation/

Read the comments - lots of different opinions but will probably help you answer how you want to do things.

Did you just buy this building? What are the current rents being charged? Why do you feel you want to convert to one year leases? Also, typically with month-to-month tenants there is either a signed rental agreement in place and/or nothing at all - not sure what your situation is.

Sometimes with lower income units, month-to-month tenacies are used because it is much easier to get a tenant out (this allows either side, landlord or tenant, to give 30 days), and many times lower income tenants can be more problematic with not paying rent on time, following rules, etc., so landlords employ this strategy.

Just because you don't have a lease with a tenant, it does not mean that you can't raise their rent. Check your state law to find out how much notice you must give before raising the rent, and if there is a cap on the % you are allowed to raise at any given time. Also, make sure none of the tenants are Section 8 (although if they were, you'd probably have a lease), and I'll assume you're not in a rent control jurisdiction.

Lastly, if you feel a rent increase is warranted, be prepared you may lose tenants. You'll have to weigh the pros and cons of that.

If you do go the lease route, I would also take this opportunity to have them fill out a rental application to have on file as well, especially if you're a new owner, and especially if the old owner didn't have one. This kind of paperwork is extremely important in case a tenant ever decides to sue you.