Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
There are some significant differences in the acquisition process on a larger property. I just completed one and have been asked to document the process by some BP posters. Here is the first entry in that journey. Rich in Killeen, TX.
Real Estate Investor · Weston, FL · Member since 2008 · 47 posts · 28 votes
17y
Great blog idea Rich!
Just adding a few things to the phase you're describing.
With existing properties you'll find that the existing lender required the seller to make reserves for roofs, windows, doors, kitchens, etc.
Those amounts are usually deposited in a separate bank account (escrow) every month.
The balance reflects the remaining economic life of the item.
Make sure you negotiate that you (the Buyer) gets to retain the balance of that account.
Some sellers consider that as a "savings account" that they receive when they sell.
I say negotiate hard on that, and make sure you don't start from zero when you become the new owner.
I also suggest you have your own inspection done.
That gives you an objective listing of the condition of the units, as well as other items that might need replacement or maintenance over time.
Personally I prefer to have my my (new) management company do this, as they will be responsible for the budget for the next years.
Their expertise is greater than mine, and they usually are brutally honest and supply great info that enable me to go back and renegotiate hard in the critical weeks before the closing.
As Rich says, don't ever accept a pro forma as gospel.
Do your own due diligence.
As a buyer your starting point must always be that the pro forma is intended to picture a perfect world.
You as a buyer will never see those numbers happen, so dig in and find out what is really there.
Visit the property several times with different members of your team to see it through their eyes.
Never hesitate to go back to renegotiate based on your findings.
This blog is a great initiative Rich; I truly believe that it will be extremely helpfull for anyone considering moving to the 100 plus units multifamily investment.
Real Estate Investor · Weston, FL · Member since 2008 · 47 posts · 28 votes
17y
Great blog idea Rich!
Just adding a few things to the phase you're describing.
With existing properties you'll find that the existing lender required the seller to make reserves for roofs, windows, doors, kitchens, etc.
Those amounts are usually deposited in a separate bank account (escrow) every month.
The balance reflects the remaining economic life of the item.
Make sure you negotiate that you (the Buyer) gets to retain the balance of that account.
Some sellers consider that as a "savings account" that they receive when they sell.
I say negotiate hard on that, and make sure you don't start from zero when you become the new owner.
I also suggest you have your own inspection done.
That gives you an objective listing of the condition of the units, as well as other items that might need replacement or maintenance over time.
Personally I prefer to have my my (new) management company do this, as they will be responsible for the budget for the next years.
Their expertise is greater than mine, and they usually are brutally honest and supply great info that enable me to go back and renegotiate hard in the critical weeks before the closing.
As Rich says, don't ever accept a pro forma as gospel.
Do your own due diligence.
As a buyer your starting point must always be that the pro forma is intended to picture a perfect world.
You as a buyer will never see those numbers happen, so dig in and find out what is really there.
Visit the property several times with different members of your team to see it through their eyes.
Never hesitate to go back to renegotiate based on your findings.
This blog is a great initiative Rich; I truly believe that it will be extremely helpfull for anyone considering moving to the 100 plus units multifamily investment.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Anyone interested in acquiring apartment buildings of substantial size should be reading and listening to Rich. He knows what he is doing and talking about.
Commercial Real Estate Broker · IN · Member since 2009 · 3 posts · 1 vote
17y
Great thoughts, Rich. It's surprising how even experienced investors forget to add in reserves.
With my broker hat on, I never use "pro-forma" financials. Maybe in special circumstances (large value-add property), but only in addition to actual numbers. I've recently had banks asking to see 5 yrs actuals instead of 3 yrs.
Louis, great tip on escrow accounts for the reserves. Few ever ask.