Is a major lack of DD a red flag?

[Christina Luton]

We are under contract for a motel/rv park that is a value add site. Seller has not been able to provide any due diligence including contracts with long term rv tenants, proof of income in any way, proof of any expenses and now proof of insurance. Is this lack of available information normal? Should it be a red flag for any reason? TY for the feedback!

[Kevin Sobilo]

@Christina Luton, I think you answered your own question!

You state up front that this is a value-add opportunity not turn-key. The failure of the seller to be operating things well is an opportunity for you to negotiate a better deal and add value by getting those aspects under control.

I look for any distressed conditions when making an acquisition, not just physically distressed properties. It could be financial distress. It could be operational distress with the owner not managing the property well. Any kind of distress is an opportunity to me if its something I can take on and improve. 

[Dave Rav]

I agree with the previous sentiment.  For seller to have zero financials or history is a little concerning.

I always like to say, if I can’t verify something then I can’t give credit (ie, either I will charge for it or deduct it from my PP).

[Trevor Oldham]

I would definitely say so. I'd be concerned that they're hiding something and hoping to not have to disclose it or you as the buyer to find out and then once it's yours, it's your problem

[Bruce Woodruff]

Why take a chance? Is this the only property for sale in your area? It's not that difficult to get ahold of some leases and insurance paperwork. He is obviously hiding something.

However if you're feeling like taking a risk, there are sometimes opportunities hiding behind situations like this...

[John Mocker]

Cristina,

From the Insurance side, you may be able to take some of the uncertianty out of the equation by getting your agent to run quotes now and finding out what will be needed to start the policy.  If you have a quote that will be honored without getting info on the current coverage, that takes a big risk out of the purchase from an insurance point.  

It is still a good idea to get copies of the current coverage, Loss Runs (loss history) for the past 5 years and a signed statement that they are not aware of any incidents that might lead to a claim.  

[Russell Brazil]

Contrary to what everyone wrote before....this is what 90% of small investors are like.  If you were buying a 500 unit property from Blackrock, you would have all the information and financials you would want in a very organized manner. Buying from small investor Joe Smith who owns a crappy rv park, you probably wont get anything other than maybe some stuff scribbled on a note pad.

[Jay Hinrichs]

Quote from @Russell Brazil:

Contrary to what everyone wrote before....this is what 90% of small investors are like.  If you were buying a 500 unit property from Blackrock, you would have all the information and financials you would want in a very organized manner. Buying from small investor Joe Smith who owns a crappy rv park, you probably wont get anything other than maybe some stuff scribbled on a note pad.

Exactly Russ I bought a park a few years ago and they had zero information and not sure why insurance is relevant at all as the new buyer is going to get their own insurance any way ..  although with RV they are more transient in nature so one would have to just do a rent survey of other RV parks and then figure out occupancy for the area .. check county for tax's etc.. everything investor do on their own.

[Dave Rav]

Well, what I’ll say is it definitely doesn’t hurt to ask for DD items.  Why not ask for 2 years rental history, some tax returns, and current rent roll?  Never know what you might get..

And assuming smaller investors don’t keep records is a poor assumption.  Even if you get 50% of the info needed, that could prove quite helpful.