When buying from Mom n Pop sellers...

Question

When the seller only has a hand written Income (rent) and Expenses, 1 page, 1 month, what is the best way to confirm all income/expenses?

I'll be looking for:

tax returns

bank statements

any invoices

utilities

What should broker provide? (I know this is tied to what seller has)

Thank you!

Matt Devincenzo · Answer

What level of asset class are you buying?

On small assets SFR/small MFR and even small MHP, it's somewhat irrelevant what the seller is making/paying. Your market dynamics will dictate what pricing should be regardless of what they are now. Asking for and evaluating T12 is much more relevant to larger MFR with management than M&P operations.

I'm not saying you can't ask for it, but in a practical sense it likely doesn't matter on most small sales.

Rene D. · Answer

@Roger D Jones So true on your last point, thanks!

@Matt Devincenzo Great point - thank you!

Rene D. · Answer

Account Closed not sure what you mean?

Roger D Jones · Answer

I know what you mean @Rene D.!!  The best deals are with the 'mom and pops'- we all know that. But with that comes some challenges in getting through their record keeping to get to an actual and true P/L to start evaluating the CAP.  Old school ledgers and rent rolls written on notebook paper... I got that with my Omak park.  They did not even have records... just paid the bills and pocketed the cash.

But you know enough to be able to fill in the blanks and get close... public records, utility companies, visiting with residents, walking the park and networking with other park owners.  If I was going to sell one of my parks I would not provide my tax returns or bank statements but would provide my P/Ls, rent rolls, list of utilities, taxes, insurance, etc.

And in some cases this is an opportunity for you.  They don't have any analysis or record keeping.  No financial uderstanding other than 'we make a little money and try to keep the rents low'.  That is frustrating but it is also an opportunity.  You see opportunities where they lost interest in looking...

Rene D. · Answer

It seems you are the only person who understood the question wanting to know what a seller makes (not even sure how or why you think that).

As a typical part of the DD process it is not uncommon to ask for property/entity tax returns. This helps you, as the buyer, understand the health of the asset.

Where in the post does it say anything about what a seller makes?