Investor with no paperwork??

Question

I've put in an offer on a 4plex that's been accepted minus the following contingencies I had to review: maintenance records, leases and rent roll. They say they have no maintenance records, rent roll or leases (aside from the fact that 2/4 tenants are month to month, other 2 units are vacant) Price seems good for the area but I feel like the lack of paperwork is a red flag considering they've had the property for 10 years. Am I being overly cautious?

John Clark · Answer

Tenant estoppel letters are a must in every situation. First, the tenant has to admit that he has no claims against the landlord, known or unknown, accrued or incohate. Second, he admits that his deposit for the apartment is $X dollars. Third, he admits that the apartment is in good shape (see #1 above, this is specific). Fourth, he admits he's on an oral month-to-month lease. Fifth, he provides  a catch-all release.

The idea is to get a blank slate with the tenants. Now you turn to the owner: Who is doing the rehabbing? talk to the rehabbers. Are they being paid? Are they doing things to code? Do they have permits for the job? Last thing you need is the town coming after you for no-permit work that isn't up to code. Next-to-last thing you need are mechanics liens recorded against the property. Use the tenant to estoppel letters to find out how much should be set aside for their escrows. Use the contracts and your conversations with the contractors to find out how much to set aside for rehab work in progress.

Iley A Parisi · Answer

They refused to show tax returns, and the current tenants according to him are month to month at $700/mo (2 of the 4 units being occupied, the other 2 are being rehabbed and should rent at $1100 a month minimum) The price is a pretty good deal for the price, but not a great one. They at least aren't trying to sell it for what it could be.

would an estoppel cover that month to month requirement? Or is that in addition to requesting a month to month lease signed prior to closing?

Jon Kelly · Answer

@Iley A Parisi it's not uncommon to see this with smaller properties or "mom and pop" landlords. It should be a concern, but hopefully the purchase price is reduced due to the risk. I would not buy the property at a price of what it "could" be in the future. You can ask for the owners last 2 years' of tax returns showing the income/loss on the property. I would also require the current tenants to sign a month-to-month lease before closing or have the units delivered vacant at closing.

Paul Choi · Answer

@Iley A Parisi yeah they are red flags but you can work around them. Start with getting tenant estoppels.