Agents/Owners Not Providing Cap Rate/Financials

9 Replies

Hello! First post here, I have been a RE Agent for 10years but just now getting into multifamily and light commercial. I am currently helping a client find & purchase a 2-4plex, but I am finding many owners/agents not providing financials, rent rolls, or info needed to determine a cap rate even after asking. Is this normal? 
Wondering how my client can make an informed decision without some of this info or do we just pass on those properties? 
Any insight would be appreciated!

TIA! - Israel

@Israel Flores

You should be able to at least find out how much the current rent is and what the current leases are up front. If they don’t want to provide you with the detailed financials that’s fine. Some will give you everything if you sign a non-disclosure agreement. They definitely better give you all the details as soon as you’re in contract at the latest.

Two to four unit are 'residential sales' where cap/seller financials aren't very important. They're valued by comps not cap rate, and rents are pretty consistent and easily increased by a buyer. I wouldn't even bother with what was provided since I only care about what I calculate as a reasonable amount based on my market knowledge. Even if say rent was 50% of market, that wouldn't justify a 50% reduction in my offer...I know what it should be and since it's just a couple units I can get it there within 2-3 months (assuming lease dates allow). 

@Matt Devincenzo

These numbers are very important if you have rent control to deal with.  In California, you’re limited as to how much you can raise the rent each year.  This plays a huge factor in what someone is willing to pay based on how far off of market rents the property is.

@Matt Devincenzo   Yes I have noticed that, and for my clients part if its a 4 plex or under its not going commercial so the lender doesnt care about cap rate per se and cares more about the comps which I can run easily. Its the bigger properties with 6-10 units that we have trouble getting financials for it seems like. I still like to get as much info for my clients as possible.

@Israel Flores in my experience it depends what type of landlord they are. Do they use a PM company? If so, you'll likely get the T12 and RRs. But if they self manage it depends if they are organized or not. It has nothing to do with the professionalism necessarily of the Agent, it's the owner/landlord and how they have financially managed the asset.

Well,  here goes ugly:  I don't trust sellers' financials.  That's not vetting. That's gathering someone else's math.  If they have them prepared, I certainly will take them but I don't care what the taxes have been or their insurance costs...the only meaningful analysis is of what will be paid/earned.  I request/require to be told the rent prices and remaining term on leases.  Then within 3-days of executed contract - per my Purchase Contract - I am to be provided with all leases, security deposit records, and any screening material. If any of that is not acceptable, we have the right to cancel and walk with escrow.  I'll calculate my own financials and screen the tenants via internet search.  This is a long way of saying - nothing gained, nothing lost.  Never trust anyone else's math.  Do your own vetting.  Let the buyer beware - and we so-o-o do!