How do you handle poor financial and rent roll data?

3 Replies

I am looking at a four unit and requested the T12 and current rent roll from the agent. What I received in return were lease agreements from 2016 which are month to month and a document called a "financial statement" which consisted of a list of expenses (oil, sewer/water) That was it!

It's a value add opportunity with one unit vacant (not sure why yet) and needs upgrades in units.  

Do I have my agent press the seller for more financial data and current rent roll?  Is this an opportunity because it's obviously being poorly managed?

Any insight would help.

Thanks!

@Brian Stefanelli Sure, you could have your agent press the seller for more information...and then could just make it up.  Search for an Excel template, take a couple of hours, go "from memory" and give you something that's worthless or worse.  I'm not saying that would happen but I think you've already figured out how good/bad their record keeping is.  If you get the place under contract you can review the leases (which I think you're saying you already have) but I'm also going to guess that any historic "rent roll" will be dicey at best.  You could ask for whatever the heck he's telling the government he's earning from the property on his taxes...but...again...who knows how accurate that information will be.  So the net result is that I think you'll get *more* information but likely not accurate or *better* information.  

If you're going to use a PM then I'd ask you agent for PM recommendations and have them give you their perspective.  They are living the market and they will have a feel for what rent levels should be and what issues commonly occur (or don't) with evictions, turnover time, vacancy, etc.  

I think there's a lot of talk on BP about 'poor managed' properties being an opportunity. In a lot of cases, that's correct. But there are plenty of times where owners defer maintenance (right or wrong) because it's a bad area, low quality tenant pool, and there's simply zero ROI to do something as simple as touch up the paint at unit turnover. Sometimes the property just screams at you "I AM WHAT I AM" and short of buying up a square mile of properties there's not much an individual owner/building can do about it.

Sooooooooooo...that leads back to the most salient question of all:  Do you believe in the area?

@Brian Stefanelli  Ask for tax returns, or do a 4506-T.  It is common for small multis that small they are not very good at their accounting.  If they won't provide that at least ask for utility bills, copy of insurance dec page, and rental agreements.  I prefer to ask the seller to evict the tenants if they say they are on a month to month lease but in  a multi offer situation that may not be possible.  Otherwise for a small multi your agent should understand the market enough to know what type of cashflow you can expect.  Otherwise if they provide nothing you have to make assumptions that you feel are reasonable.  I tell the other agents that if the seller can provide better documentation, and eliminate some of the guess work my client will offer more, which is true.

take gross rents, subtract 50%, does the deal still look good? No? Move on. Yes, get it under contract and refine #'s in due diligence

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