I have recently decided that I want to purchase a 2 to 4 unit multi-family property either in and around the Madison, WI MSA or within a 30 minute drive from the City.
This acquisition would be my first direct real estate investment, and I want to make sure that it goes well, and that I purchase in the right market.
As a new investor, I want to make sure that I complete as much due diligence as possible prior to writing an offer to purchase to avoid any surprises that might come up, after I am committed towards a purchase.
I had some questions that I wanted to ask members of the community, some of which would be specific to Madison, WI and Dane County, WI investors:
(1) What types of due diligence related documents is it standard to expect a seller of a property to share up front prior to writing an offer to purchase on a property (for example: lease agreements, a recent P&L statement, etc?)
(2) What are the standard key metrics that are used for comparing 2 to 4 family investment properties to each other, for the best apples to apples comparison?
(3) Which banks in the Madison, WI and Dane County, WI area offer the most favorable financing terms to investors?
(4) For an investor that doesn't have a real estate license, does it make sense to work with a residential buyer agent for finding 1 to 4 family investment properties, or would a commercial broker be the best way to go?
Thanks for sharing any valued advice, thoughts, and feedback, as I explore the best options for my first direct real estate investment opportunity. I appreciate any and all thoughts and input.
1) PL and reviewing leases would both be reasonable to ask for as diligence items for review in a purchase. If you are lucky you would get them prior to contract but if I was a seller I wouldn’t share actual leases prior to contact and give out my tenant info to potentially not serious parties. Rent roll would suffice.
2) I would look at as many of the metrics as you can as apples to apples can be difficult. Cap rate can be valuable but is not as common for 2-4br and it also may be tough to get realistic expenses in comps. Obviously comparable sales is a good tool in valuation. Other internal metrics you could use are cash on cash return or IRR.
3). Where do you bank currently? I would start by asking them for a pre qualification for the type of building that you want to buy and then shopping. Select One Mortgage is an independent Mortgage Broker who has been giving some of the best rates I have seen locally since they can shop any type of loan. There is some logic in establishing a relationship with the local banks even if they may not be the best rate for this kind of product.
4) that would be your preference. There are good brokers in both categories and there are bad brokers in both. Find someone who you are comfortable with. An income property can be more work than a traditional residential purchase so much sure that whomever you work with has time to give you everything you need.
Holler at me if you have other questions.
Andy has good advice.
1) rent roll and copy of the leases are standard in commercial usually provided prior to offer. For 2-4 units seller may not be that “sophisticated “ and wonder why you’re asking.
2) 2-4 units are valued as comparable in terms of size use and condition like single family homes. When you get above 5 units cap rate and income will be your leading indicators with location.
4) if you’re buying off the mls absolutely use an agent. If you aren’t you may be required to pay their commissions and not the seller (unless you can work that out).