BiggerPockets

Hello BP,

Yesterday 1/12/12, I got a 6plex under contract in southern California. Four 2bd+1 and Two 1+1. Owner is financing with me putting 30% down. Building is currently fully occupied. What documentation should I ask from the seller. I will be buying and holding the property.

My current list is:
1. Rent roll for 2009, 2010, and 2011.
2. Who is paying utilities? If owner then I need copies of the 3 past bills.
3. Copy of leases. Is everyone current?
4. Copies of bank statements showing regular rent deposits.
5. Who is managing the company currently?

What am I missing? This will be my largest building and I could really use any input not just on paperwork, but what are some deal killers/red flags for you.

Thanks,
Andrew

Patrick thanks for your reply:
I will be getting a professional inspection, already looked into taxes and it is current, and I am getting title insurance without a doubt.

I would ask for copies of receipts for any work done to the property and operating statements (YTD and for the past couple years). If the current owner has kept a detailed profit and loss record it will help you to gauge trends in expenses.

I always do an inspection for visible issues and document them, have the owner sign. One this is required in some states, two - it protects you from some liability. Check with your state for requirments.

Hello Gary, thanks for replying to my post. Can you explain a little more about what you mean by having the owner sign during inspection. I personally never heard of this. How could it help me reduce liability?

Sorry, what is a "tenant estopple"??

That's a great start, I would definitely add the following to that list:

1. Recent inspection reports. Depending upon the city, you may need point of sale and other various inspections in order to transfer title.

2. Tax returns - you want to see what the actual numbers are.

3. Expense report

4. Recent appraisals, owner should be able to have comps pulled for you

I think that would be sufficient. Also are you having an attorney draw up the paperwork. I do this with every deal to keep myself protected.

-Get tax info (schedule E, C etc) for past several years;
-copies of leases AND rental applications (leases generally do not have dob or social security info you may need later to evict)
-profit and loss statement - you can usually verify a lot from the local county/state tax assessment website (i.e. water bill, property taxes); contact gas & electric for accurate 1-year monthly average
-get permits/licenses: make sure the property is compliant before-hand with lead permits and any state/city lead or multi-unit licenses and inspections
-of course the inspection will tell you what kind of deferred maintenance there may be and what you can be looking at laying out the next few years
-if you are buying the company (such as an LLC which in turn owns the company) then have an experienced title attorney who handles these also run lien search on both company and property, and update all appropriate filings. In fact, make sure the company (if it is held by one) has current active status with the state. For example, I ran across a good prospect multi-unit lately but the seller (LLC) has been forfeited by the state (for non-payment of personal property taxes by the LLC each year) and now would need to clean that up and reinstate prior to any sale.
-also you can check the background easily on your state's judiciary case search and/or sex offender registry. Don't want to inherit any issues such as that.
Good luck!

I would imagine there is some common-area lighting, and that would imply the owner pays for some electricity.

When you take over, be sure to have efficient bulbs installed in those common areas (either compact fluorescent or LED). Cost of operation will be lower on the electricity bill, and they have longer life (replacement less frequently = less work to do).