What documents should I ask for when evaluating a multifamily?

Question

Hey guys,

I am going to see two prospective quadraplex's this weekend and wanted to see if anyone had any suggestions as to what documents to ask the current owner for.  I already know the taxes for both properties and I have called the utility companies to get a round about number for utilities, but I wasn't sure if there is a specific document that may give me a comprehensive overview of the profits and losses for the current owner.  I have done the analysis with judicious estimates, but I would love to see real numbers if possible.  I appreciate any advice.

Oren K. · Answer

Philip,

In part it depends on the kind of property / seller you are looking at. A small scale owner may have kept track of things is a log book ( It always amazes me how people work this way but you can't argue with success ) and simply does not have any 'records' or documentation (other then schedule 'E') to show.

If schedule 'E' is all they have, then yes they should show it but to be  honest, it does not tell you much of what you need and a lot can be  hidden inside the numbers. You will have to walk through your own detailed analysis and get back up documentation (e.g. contracts, bills) to confirm everything possible.

A larger scale owner probably used more 'sophisticated' systems. Ideally they should be able to provide / generate reports; 3 year T12 P & L, 3 year historical occupancy, 3 year Capex, and so on.

Good luck,

Oren

Philip Mullinax · Answer

Thanks Chris.  That's great advise.  Do sellers typically share previous Schedule E's prior to the sale?

Chris Mason · Answer

Take everything at face value, ask the seller to fully ratify a purchase contract, then if needed renegotiate price if things like Schedule E or estoppels reveal any mis-representation.