Tips on Making Your Offer to Buy Multi-Family Properties

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I like multi-family properties.  I like single family properties as well.  Both are great investment properties and I have bought both.  While both can be good investment properties, the procedure to review and make an offer on a multi-family property is a bit different due to multiple units and tenants.  In this article I will present some tips and contract language to help you when reviewing and making an offer on a multi-unit property.

If you are interested in a particular multi-family investment property here are some things you can and cannot do when making your initial investigations.

  • You can do an initial drive by, maybe even drive through the property, but little else.
  • You should never go and walk around the property without the owner, their agent or with their permission.  Be respectful of someone else’s private property.
  • You can never, ever talk to the current tenants unless the owner has given you permission to do so.  The owner may not want his tenants to know that the property is for sale and if you spill the beans you could create a sort of “bank run” for the current owner as tenants scramble to get out.  That could kill your deal.
  • You usually cannot view all of the units on the property before you make your offer to purchase.  You can likely view one or two vacant units.  The owner is simply not going to disrupt his tenant’s personal space over and over again for “potential” buyers.

After running your numbers, doing a drive by and viewing a couple of the rental units you decide you want to purchase the property. 

Here are some clauses to place in your purchase contract to protect yourself.

  • Offer subject to inspection of all rental units and other common and private areas on the property,
  • Offer subject to a review of all property expenses.  I like to ask for at least two years worth of expense statements.  It is even better if you can get the current owner’s Schedule E from their tax return.
  • Offer subject to a review of all leases.  I also use an estoppel agreement, but that is a subject for another post.
  • Offer is subject to the prorating of all rents and security deposits as described in the aforementioned leases to the day of closing.
  • Offer subject to buyer receiving appropriate and acceptable financing.  This is your out clause if you need it.  Do NOT use it unless you absolutely have to.  If you make an offer on an investment property, please do so with an intent to close.

That’s it, some subtle but important differences. Once you make an offer, you may want to re-negotiate your offer price based upon the results of your inspection of all units and the review of the expense reports.  If you find something that was not expected, such as major damage, then by all means go back to the negotiating table.  If the owner will not work with you, then use your out clause.

Have an awesome Thanksgiving everyone!

Photo: Ken Zirkel

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About Author

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

6 Comments

  1. Good tips. I disagree with one detail, though. I do sometimes ask people who are coming and going at a property (who I hope are residents, but even visitors can offer info as well) “Hi, do you live here?” Then I ask if it’s a good place to live, and is a good value for the rent they pay, suggest I’m considering renting there myself. It’s reasonable, and people usually speak freely. Their answers can be telling.

    • Kevin Perk

      Thos,

      Very true, you can get info by acting like you might want to live there but you can get that same info later on as you do your due diligence and inspect the property. I tend to fall on the side of being discreet. Too many people asking questions, especially if there are no “for rent” signs up will perhaps lead to tenants beginning to ask questions and could put the owner in an awkward position.

      Thanks for reading and commenting,

      Kevin

  2. Kevin,

    Do you ask for financial information (Sch. E) after making an offer? Would it not be better to ask for this information prior to making an offer in order to come up with a more accurate value (offer), or do you find most seller’s don’t want to give financial information prior to having an offer?

    Ron

    • Kevin Perk

      Ron,

      Thanks for reading and commenting.

      I have found both. Agents will sometimes list properties with “expenses” spelled out in the listing. While I will use those expense numbers when making an offer, I make my offer contingent upon seeing the actual bills or a Schedule E (two years worth).

      Other times the Schedule E is provided up front and thus I make my offer based upon those numbers.

      It will just depend on who you are dealing with and what type of information they want to release and at what point they want to release it.

      I have also dealt with landlords that have no idea what their expenses were and have yet to file their taxes (wonder why they are selling?). At that point I have to make my best guess, but I do add a little cushion to my numbers.

      I hope that answers your question.

      Again thanks for reading,

      Kevin

  3. This is a great post. I have a question about the clauses…are the clauses the only differences between a single family purchase contract and a multifamily purchase contract? I’m learning about multifamily investing and wasn’t sure if I needed a entirely different contract to purchase multifamily properties.
    thanks

    • Kevin Perk

      Dee,

      You should not need an entirely different contract. I use a simple one page contract for all of my purchases to keep it simple and facilitate the deal. I simply add a few more clauses if tenants are involved. You should definitely use an estoppel agreement (look for my post on that) if tenants are involved.

      I hope that helps you.

      Thanks for reading and for the kind words,

      Kevin

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