What documents Im missing to account for EXPENSES ON THIS APARTME
Hello Bigger Pockets family,
I am looking to purchase my biggest deal yet!
24 unit apartment. I never looked into a deal this size. So making sure, I nail it, I wanted to reach out to the community to see what data I should request to make sure I come up with my NOI to properly calculate my CAP RATE...
This to request:
Income
+Rent Roll
+Leases ( When under contract)
+Tenant Estoppel Form (While under contract)
Expenses
(They sent me Profit andd Loss Statement) I asked for an expense report but they manage there on properties and Im questioning the expense report they sent.....
+I do not see expenses for garbage, lawn care so this raised more questions.
What they do have is maintenance , repairs and taxes.
For example, is asking for a Schedule E tax return to much to request ( to make sure I am accounting for all expenses.)
The properties are fairly newer built 2005 so i dont expect for Repairs to be as much as well...
Any information wouldd be helpful
Hey Darrell, congrats! That's awesome, a 24-unit could be a game changer for passive income.
I can send you a due diligence checklist our team put together for multifamily and that might be really helpful for you (if anyone else is interested, I am happy to share with anyone who would like to see it).
Here are good documents to gather / steps to complete during the due diligence process:
- Appraisals
- As-built construction documents (see what the build quality is and set up for electrical, HVAC, etc)
- Easements
- Encumbrances
- Environmental reports and related correspondence
- Government notices
- Leases (with rent roll to verify)
- Photographs - insist on looking at EVERY unit, otherwise you'll only see the ones the seller wants you to see
- Previous site plans
- Property surveys
- Recent tax bills (can call the county to ask for an estimate on tax bills after sale)
- Soil reports
- Title reports, commitments, and policies
- Zoning documents
- Any other legal documents of significance that the seller has
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#5 Multi-Family and Apartment Investing Contributor
- Investor
- Shelton, WA
Good lists. I did not see insurance incl earthquake and/or flood. I did not see a flood plain map. Many of the properties I have researched are in a flood plain and I have had to dig that information out on my own.
Here is my checklist that I have all my agents and coordinators use when selling multifamily;
Obtain an OM, Offering Memorandum from the listing agent (always, never trust and always verify everything)
1. Rent Roll showing current rent rate, deposit, lease term, concessions, unit type & arrearage. Included payment history for the last 6 months. Identify any evictions in progress. (Lease audit)
2. Copies of rental applications for all tenants (may not give right away, but always obtain)
3. Tenant Profiles for each unit
3. Utility statements for the past year
4. Service contracts showing term of contract, monthly fees & work to be performed
5. Last 2 years profit and loss statements, or summary of expenses (T12)
7. List of improvements made in last 5 years
8. Current management agreement (if any)
9. All insurance policies and insurance company contact information.
10. Last two years property tax bills
11. As-built surveys
12. Owner's Title insurance binder (is it in a flood zone)
15. Written inventory of all furnishings and other personal property in, on, or commonly in use for the normal operation and maintenance of the subject property. Identify personal property that will NOT convey.
16. All warranties for appliances, equipment, utilities, roof, paving, etc.
17. Depending on the size of the property, does your investor have experience, other assets, liquid resources
18. Rent Comps (MLS)
19. Sales comps (MLS and Co Star)
20. Property Inspection, Termite and 4 Pt/Wind Mitigation (walk every unit if possible)
21. multi over $1 million will need a Phase 1/Environmental report. This report looks at asbestos, lead paint, wetlands etc…(this takes about two weeks)
22. May need to obtain bids for extensive work that needs to be performed
23. Expenses really should be no more that 30-40% of Gross Annual rents, unless there is a lot of room for rent increases
24. May need a survey too, always check with the lender (this can also take two weeks to complete)
It looks like you are getting a lot of really good information here. One question I would have is are you planning to manage it yourself or hire a property manager to do it for you?
If you are going to hire a property manager (I would highly suggest this) you will want to contact them first. Get an idea of their lease up fees, operating fees etc. When you hire them, I would also have them walk the property with you. If the company is experienced in apartment rentals, they should have a good idea of the area and have a handle on expenses that you may not be able to account for as of yet.
From what I can see, everything you have requested thus far seems to be on point. Hope this info helps
@Justin Rademacher love the suggestion about a Property Manager to give you an idea of unaccounted expenses. We run into a lot of "mom and pop" owners in this size of apartment complexes that haven't done the best bookkeeping on their end. We are often forced to rely on our Property Manager to give us expense projections when the seller's financials are lacking. The more people you can talk to with local market knowledge, the better your projections are going to be. Best of luck!! @Darrell Boazman
Hey Kim, Thanks I can see you have done this way to many times! lol
Expenses no more than 30-40% of annual gross rents. ( This is including insurance and property taxes as well correct? Not to include the debt service? )
Quote from @Darrell Boazman:
Hey Kim, Thanks I can see you have done this way to many times! lol
Expenses no more than 30-40% of annual gross rents. ( This is including insurance and property taxes as well correct? Not to include the debt service? )
Thanks Darrell, yes, just a few!!
yes that right! use that as your barometer. The bank underwriters tend to start at 35% and go up from there depending on what type of condition the property is in
I would be interested in the due diligence list..
thank you
Quote from @Jared Prevost:
Hey Darrell, congrats! That's awesome, a 24-unit could be a game changer for passive income.
I can send you a due diligence checklist our team put together for multifamily and that might be really helpful for you (if anyone else is interested, I am happy to share with anyone who would like to see it).
Here are good documents to gather / steps to complete during the due diligence process:
- Appraisals
- As-built construction documents (see what the build quality is and set up for electrical, HVAC, etc)
- Easements
- Encumbrances
- Environmental reports and related correspondence
- Government notices
- Leases (with rent roll to verify)
- Photographs - insist on looking at EVERY unit, otherwise you'll only see the ones the seller wants you to see
- Previous site plans
- Property surveys
- Recent tax bills (can call the county to ask for an estimate on tax bills after sale)
- Soil reports
- Title reports, commitments, and policies
- Zoning documents
- Any other legal documents of significance that the seller has