Is the MLS Always "Light" on Financial Data for Multifamily

14 Replies

So, I am quickly discovering that there are a lot of attractive multifamily properties in the area on MLS, but MLS has really limited financial data...is this common? Is pro forma not a listing requirement?

Medium grey red iconBrandon Sturgill, Hypothetical Insight, LLC. | [email protected] | 614‑379‑2017 | http://www.InvestHypothetical.com

Brandon, nothing more that an asking price is needed and that could be listed as "Make Offer".

You never use a pro forma provided by a seller or listing agent other than to see what fixed and variable costs by item are involved, then you begin to verify the numbers to see what they lied about. 

You build your own pro forma, you look at the market, actual rents and occupancy and consider changes you'd make and the time to make changes, repairs and improvements.

Then look at your investment requirements and you can establish an offer.

You should be able to apply market rates and get a quick assessment from an asking price if the place is really for sale or is just listed, if it seems like something to explore, call, make an appoint, get the representations, consider again, go look, do your due diligence, make an offer.

Most sellers don't give financials until they see they have a qualified buyer, they don't dump their personal financials out to the public.  :) 

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Most of the time, with MFH on the MLS, you're lucky to even get rents for each unit let alone a pro forma! Best thing to do is know your market and roughly what the rents should be by unit size, then you can quickly do the math in your head and eliminate the dogs. If a property still shows promise, start adding in the expenses. You'll get to know what to budget for trash, water, sewer, insurance, common area utilities, etc.

Unfortunately, you just have to run a lot of numbers and dig deeper on the ones that aren't dogs on the surface. I'd venture to say most small-time landlords aren't going to have a pro forma for you. Most can't even produce utility bills...

I'll second @Bill Gulley  .  Plan on building your own pro forma.  In my market it's the same way, very limited information on the listing.  Sellers want to make sure they have a serious buyer before they start divulging all their financials on a property.  And even then, as was already mentioned, you will have to sift through it to find out just how true the information that they give you is.

@Bill G. @Troy S. @Jeremy Zindel Thanks for the education. I still have a lot to learn in this area, but am really excited about the prospects. Are there certain data points you would use to build a pro forma...it seems like a lot of fragmented work during due diligence...

Utilities- I can contact the utilities dept., Taxes- I can contact the county auditor. Mortgage- I can estimate easy enough. Insurance- I can get a quote from my agent. Rehab costs- I can estimate pretty easily, etc., etc...

Vacancy Rates- No idea (should I just plug a number...2%?)

Cap Ex- No idea...(plug X%?)

NOI- No idea...

Fair Market Rents- Just perform research on comps? How would you estimate based on condition of building?...and what about existing tenants with remaining leases and established rents?...

Medium grey red iconBrandon Sturgill, Hypothetical Insight, LLC. | [email protected] | 614‑379‑2017 | http://www.InvestHypothetical.com

If you are lucky enough to find an agent that really has their finger on the pulse of the multifamily market in your area they may be able to provide some insight on a few of the items like vacancy and market rents.  I would just take these at face value and try to verify them yourself.  As far as market rents go, I would call nearby apartments and ask questions as if you were looking for a place to rent yourself.  More than just what the rent is, you need to find out what utilities (if any) are included and what amenities may be included like covered parking, garage space, storage space, etc.

Another resource could be a commercial lending officer from a local bank, especially if they happen to also invest themselves. These guys are use to building NOI statements to evaluate how sound a deal is in order to justify lending on these types of properties. I've learned a lot about vacancy rates, market rents, cap rate, etc. from a commercial lender I've used who is also does a little investing on the side.

One other potential resource would be if there is an apartment owners association in your area.  I don't have any experience with this type of organization but it's possible you could find someone willing to help you or provide you with guidelines for the information you're looking for.

Watch active rents, days on market and inventory levels, info in MLS is usually limited as noted above, and I have found more often than not that smaller owners are getting lower rents from family or long term tenants, getting it vacant, do whatever renovations if needed, get your own tenants at a higher rent and don't take someone else's headaches...just my opinion.

This is great information. When I started looking at multi's over the last 6 months, I found the same thing. Everything is vague until you start asking questions and even then, the information usually just pertains to the current owner. Taxes and insurance will always be more, rents are rarely verifiable, few of the tenants are on leases. common area maintenance is done by a tenant for some kind of rent reduction, etc. 

There is a spreadsheet somewhere on BP that you can use for each property, and it's a good exercise to just practice plugging in the numbers and learning what you need to know/ask.

@Brandon Sturgill   Also, I don't know if you were just throwing a number out there or not but I would think 2% vacancy would be extremely difficult to achieve.  Maybe your market supports that but my gut says that's too low.

Use a 10% vacancy rate.

As to vacancy and pro formas, several ways to play with numbers, but I load the vacancy rate as a annual expense then spread that over the year at uneven amounts quarterly, 40% first qrt, 30% second qrt, 20% 3rd qrt and 10% last qrt.

This puts an exaggerated front end load on expenses, increased initially and reduced over time. I also take out existing vacancies for the 1st qrt to income.

The purpose of doing this is not to see how you'll possibly get rich but how you'll possibly go broke. This distribution will put a steeper hump to get over starting out. After a year I just level out the vacancy expense.

You can do the same with other variable expenses. Hit lawn care in season, snow maintenance, heating oil, outdoor maintenance are all seasonally adjusted to hit your expenses appropriately as would be incurred.

You should be able to get actual utilities, I add 2 or 3% as rates increase.

Pay taxes `due in January as paid.

Spreading 1/12th of expenses is fine for some things, insurance can be set side monthly, but spreading all expenses gives a poor indication of expected cash flow, so consider seasonal adjustments and actual payment requirements and that will give you a better idea of what to expect in each month.

Be conservative, again, you not doing this to see how rich you'll be but how poor you could be. :)    

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

The calculators are great, definitely a big help!