Requesting Seller's / Landlord's Tax Return

17 Replies

Hello BP. I was wondering if others commonly request the seller / landlord's tax returns when buy a rental property. if so what is the common practice for this. would it have to go through an attorney to scrub the personal info? Thanks for the help!
Asking for a copy of their "schedule E" is a pretty common thing for a buyer to ask. I would ask for it to confirm accurate income and, more importantly, expenses.

@Callum Ross as @Jason DiClemente mentioned. I was hoping to determine accurate income and costs. To validate the rent being charged and expenses from the property. 

@Jesse Os to confirm rent, you can also get signed leases and estoppel agreements from the tenants.

@Jason DiClemente thanks for the help! I have starred estoppel agreements as a subject to research. 

Are you able to look up properties in the county and see their year tax bill? You can in Maryland, at least. How about water bills? Might be able to see that online too.

Regarding rent, yeah, ask for current leases, but also just look at the market. On Zillow, are there similar properties for rent? Perhaps on Craigslist?

Great suggestion asking for the Schedule E Jason, I'm going to start adding this to my due diligence.  

@Jesse Os I have requested the Schedule E or form 8825 for an S Corp. Basically that is just the information that pertains to the profit and loss of the property. Some people provide it with no issue and others refuse. Generally if people refuse that means they are under-reporting expenses or over-reporting income. For lack of that being provided I request a detailed income and expense statement for each of the last two years that is signed by the seller or their CPA. 

Be careful when a seller is just providing "estimated" expense. Very often they won't include repairs or CAPEX. I have even seen people short numbers for utilities in the MLS listing. They want to make the numbers look better.

Same goes for rents versus income. It is very rare that monthly rents equals income. 

For example, things like vacancy, no payment, rent increases, late fees are all going to affect the actual number. One good test is take the monthly rent total for all units, multiply by 12. Then compare that number to the total income show on the Schedule E. The closer the number is to 100% the better.

The more people resist providing information, the less you can trust what they have provided.

It's very unlikely that I'd provide my return to a potential buyer. What would you learn with a tax return that you wouldn't learn through reviewing leases, performing an inspection and performing standard due diligence? 

@Corby Goade you would learn realistic income for the property and if there was maintenance deferred to make the property income look better than it really is. It's a pretty common thing to ask for an investment property.

Maybe for large apartment buildings that will make sense but for 1-4 units I don't see the need to request a seller's tax return. 

Tax and water bills are available online. You can also obtain electric and gas info easily. A quick inspection gives you an idea of the condition of the roof and window, and water heaters and boilers/furnaces have a manufacture date on them to help you budget for their replacements.

I guess it will be easier to have all that info in one place ready for you. So are you also willing to give your tax return to the seller? After all, he can claim that he needs to make sure that you can close the deal!

@Victor N. Yes, proof of funds or a pre-approval for financing are common things to ask of a buyer, and I almost always include them voluntarily with an offer. There are plenty of maintenance items that can be deferred that you may not know about with an inspection. How can you make an accurate offer on a property if you can't calculate NOI? If I were buying a multi family and the seller was not willing to disclose true income and expense, I'd move on. And if I am willing to move on, you are shrinking your pool of buyers and effecting your sale price.
And to be clear, I'm not talking about personal tax returns, only the schedule "e", as it relates to the property I am looking to purchase.

@Jason DiClemente , wouldn't you get that same information from leases and a professional inspection? Still don't see a need. I've bought several investment properties and never relied an a proforma or anything provided directly from the seller or agent beyond current leases. 

Originally posted by @Corby Goade :

@Jason DiClemente , wouldn't you get that same information from leases and a professional inspection? Still don't see a need. I've bought several investment properties and never relied an a proforma or anything provided directly from the seller or agent beyond current leases. 

Leases only tell you the contracted rent, not the actual rent collected. Income includes vacancy, rent increases, delinquent and unpaid rents and late fees. For example, some of my properties have income that is over 100% of rent due to late fees. Tax returns will also show you if maintenance or utility costs are especially high. Every time I calculate cap rate using ACTUAL income and expense, it is always lower than the MLS listed cap rate. So yes, there is plenty to learn. It is just another piece of information. Nothing private in a schedule E.

@Joe Splitrock , good info, I had not thought about additional income from other sources. Beyond that, I just assume that everything I get from the seller is ridiculously inflated. 

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