Originally posted by @Ryan Reynebeau:
I am looking for my first deal in real estate, and found a post on craigslist in my area that I though had very good potential. It is the first home that I am inquiring about. There was no indication that the seller was any kind of investor or if he was just a homeowner. I reached out to the seller via email with some very basic questions about the property and told him that if things look right, I would be happy to make a cash offer, albeit that I would not be able to offer the full asking price of 95k. I did not disclose the amount I would be willing to pay.
He replied about 5 minutes later with a message that had a hint of intimidation (keep in mind, I have never made a purchase in the real estate space, so maybe I'm overthinking!). Is it against the forum rules to post his response? Well, I posted it below. One of my questions was if he could provide the rental agreements from the current tenant (paying 595) and for a past tenant of the unit which could "easily rent for 995". I also never mentioned a comp or Zillow, so he's assuming things about me (Little does he know, his assumptions are correct...).
I looked him up, and indeed he has a website and a real estate LLC. Just my luck to run into an experience RE investor for my first inquiry! However, something still seems a bit off with it.. maybe a hidden problem that he is trying to pawn off. Either way, I left a nice message that I would talk with my partner about his "rock bottom" price (still not disclosing what my offer would be) and how we could make the numbers work, and then get back to him in a couple days unless we couldn't meet his minimum, in which case I wouldn't waste his time.
Seller's Response:
"Yes to all your questions except the written leases. Previous owner did not believe in written leases and upper unit tenant is vacating by April 1st, I hope. Otherwise is rented for $595/mo +utilities for the upper. Lower unit is vacant and I have not rented it yet but would easily rent for $995/mo, maybe more depending on improvements that are done. I don't need to sell the house and am prepared to fix it up myself as I am also a licensed contractor. But that being said, I also have about 10 projects on the backburner and just wanted to see if someone else wanted to take this one over. Hence the reason I would sell it. My rock bottom price is $86,000 AS IS and won't entertain anything lower than that. I can rerent the house with minimal work and cashflow like a banshee on it. If you are looking at zillow for comps I would suggest you look at actual MLS comps instead for 1624 square foot 5 bedroom 2 bath homes to see the real after repair value on this property. If you rely 100% on zillow, take note on how I influence that value in the next 2 months and you will see how it can be manipulated. Previous owner owned it for 30 or 40 years so zillow doesn't know what to do with that information, or I should say lack thereof."
Thanks for the input.
Ok, let's not worry about the seller's email etiquette lets focus on business.
Here’s the list of due diligence items you should always request (and expect zero push back on):
1. A completed and signed Seller’s Property Disclosure.
2. Copies of all leases and rental applications, to include:
a. Most recent financial statements and credit information and reports, if any, on any tenant
and of any guarantors of any leases or rents.
b. Any executed letters of intent with prospective tenants, including lease concessions.
c. Leasing status report from the leasing broker, including pending rental applications.
d. Include copies of leases for all subsidized tenants and documents relating to any inspections
by government agencies.
3. Historical rent delinquency reports.
4. Operating statements (income and expenses) for the previous two years of ownership and current
year-to-date operating statements
5. Certified rent roll showing unit numbers, tenant names, rent rates, security deposit amounts, current
rent payment status and lease expiration dates.
6. A schedule of all capital improvements made to the property for the past 2-4 years.
7. Security deposit detail (tenants and pets).
8. All service contracts, manufacturer and service warranties, and other written contracts or
agreements. A property may have contracted services for Laundry, pest control, trash hauling,
landscaping, snow removal, elevator servicing, cleaning services, window washing, security
services, parking lot sweeping, etc. If possible obtain copies of current service contracts and
review the following:
a. Term of contract.
b. The monthly cost for services.
c. Work to be performed.
d. Termination penalty.
9. As-built surveys showing any improvements to the property.
10. Copies of liens or liabilities on the property that should be known to the buyer prior to closing.
11. Copies of all insurance policies.
12. Copies of all insurance claims in the past 5 years.
13. Lead-based paint disclosure.
14. Inventory of all property owned by the seller and a complete list of all inventory to be transferred
with the property.
15. Physical inspection of the property (this is not a document — it’s just a reminder that you should
always request a physical inspection as part of your due diligence).
Here are additional due diligence documents that may be included in your document requests:
1. Names and contact information for all employees including salary information.
2. Copies of all warranties.
3. Copies of last two years’ tax bills — including evidence of payment.
4. Copies of all architectural renderings and blueprints.
5. Environmental audits and reports.
6. Soils test reports.
7. Engineering studies including reports on walls, roofs, foundation, supports, and floors.
8. Any structural, mechanical, electrical, plumbing, seismographic, HVAC or other property systems
replacement, maintenance and/or repairs (including invoices and estimates).
9. Copy of current mortgage, and letter from the current lender(s) showing the current balances and terms
of the mortgages.
10. Copies of all local utility invoices showing current service.
11. Current operating and capital budgets of the Property, including a comparison of actual to budgeted
results and an explanation of significant variances.
12. Current aged receivables and payables reports.
13. Reports showing compliance with ADA requirements (Americans with Disabilities Act).
14. Building square footage certification.
15. Recent photographs of the property.
16. Copies of rental unit floor plans.
17. All property licenses and permits.
18. Certification of fire inspections and any other city-sanctioned property inspections.
19. Certificates of occupancy for each tenant.
Some items on this list can be waived not needed or information obtained in other ways like inspections, appraisal, title reports, and county.
Would you marry without meeting the other person?
That's what you will be doing if your due diligence questions cant be answered at least the basic ones.