Considering a 24 unit multi

16 Replies

How does this deal look?

This is a two story, 2 building multi. On site laundry facility, water is paid by owner, tenant pays electric, no gas, no pool, very good neighborhood, units are in decent shape. There are 8 1 bedroom units, and 16 two bedroom units. Rents range from $400/mo to $550/mo, taxes are $9800/yr, insurance I have no idea, Seller is asking $700k. 

I talked with a Realtor about getting the financials, and she said I needed to write an offer contract, and request them in the option period. That sounds kinda backwards to me? How can I make an offer if I do not know the occupancy, annual maintenance,  and other expenses? I will have no idea how much money I will be making or losing? Am I off the mark here, and the Realtor is right? I have not bought a multi before, so I am charting new territory.

Any advice would be appreciated, thanks!

The realtor is a moron. (Yeah I'm not always nice.)

You can offer to sign a confidentiality agreement if they'd like and that is common.

Most realtors have no business listing a property this size. It's nothing like selling a lake house to their brother in law. I'm basing my opinion of the agents experience from your post and the fact that most commercial agents understand how offers are based upon financials.

I'd ask nicely for them again and explain that you make offers based upon actual performance of the subject property not a guesstimate of how someone thinks it would perform.

If that doesn't work?? I'd go straight to the owner. I'm not above going around an agent that is standing between me and a deal.

Realtor is out of line. Neither he or she is representing the seller at his or her best interest. 

Give them an LOI and ask for the financials before a contract.

Please tell me that the realtor is not your buyer's agent. Either way, that should not be the case; it's a perfectly legitimate request.

Your request is not unreasonable.  However, they may request a confidentiality and a financial pre-qualification to make sure you have the ability to buy.  

Your request is definitely not unreasonable,  but I have found some sellers don't want to deal with extra work unless they know you are a qualified buyer. I mostly work with banked owned properties and my clients almost always have to submit a contract and proof of funds before the banks will start any communication. I agree it is backwards and that is usually the first thing my clients question but that's how they function. I am in Missouri and I know laws differ, but I would obviously make your offer contingent on their financials and amend your offer as you see fit after you have a chance to run your numbers.

Sounds like a residential agent listing a commercial property. You're right on target...the listing agent is way out of her element on this deal. 

Hi @Josh James  ,

Like others have stated, you should find a RE Agent that has a lot of experience in this type of property.  Clearly, the one you are trying to work with now doesn't understand the process.  You have the right to request the actual rent roll and expenses, that way you can figure out the numbers for yourself.  Verify as much as you can upfront, so that your initial offer is in the ballpark.  Later during your due diligence period you can adjust your offer based on additional findings.

Your offer should be based on the actual current performance of the asset.  Again, an experienced RE Agent in commercial multi-family can advise you during this process.  Surround yourself with experts that want to help you!

Happy investing,


This is where it really helps to have experience.  I already know about how much the expenses are going to be for something like this in my area.  I also don't trust what comes from the seller most of the time.

My data from Texas is old but I would guess the expenses would average around $4000/unit/year.  Add another $250 for planned capital improvements.

I also know what income will be based on experience. 

You can find all of this out with a bit of work. 

Find the income by calling adds and visiting comparable apartments in the area.  Dress and act like a potential tenant.

I think IREM used to publish data on expenses by area and apartment type but it costs money.  You can verify all the expenses once you get into contract.  The toughest to verify are maintenance and repairs.  Most of the other expenses are traceable.

How I go about this is I make an offer based on my proforma.  Once under contract, I will ask for adjustments in price based on discoveries during the due diligence process.

We just recently looked at a 12 unit multi and had a 50 page certified and audited document that included all the financials for the past 5 years as well as an individual breakdown of expenses for each unit within 2 minutes of signing the NDA. As others have mentioned; you may need to find a new agent that understands and specializes in such transactions. 

@Josh James  

@Steve Olafson  was very diplomatic with "I don't trust what comes from the seller most of the time". 

In reality, the memorandum of offering from the Vendor and their agent is fiction.  Sometimes it's just a rose coloured outlook on future revenues {Hey, we're 100% occupied, who needs to account for vacancy} and expenses {The roof has at least another 15 years, no need for reserves}.  Other times, your find yourself reading a penny horrible with outright misrepresentation of past financial performance.

Another favourite is the repositioned asset, "We've totally rehabbed the entire 24-unit building and it's now 100% occupied".  Nevermind the building has only been occupied for 6-months, and current performance is meaningless and should not be used in the same sentence as seasoned.

We always request a minimum of 3-years operating financials, rent-roll, vacancy/turnover/bad debt history (3 yrs), a summary of all existing third-party contracts (elevator, snow removal/groundskeeping, etc) and a summary of all recent and near term CAPEx upfront, before we can even entertain the possibility of an LOI.

Be prepared to roll up your sleeves and ferret out the truth yourself - as Steve and others indicated, most operational costs can be verified from third parties. When it comes to maintenance and CAPEx, you can ask/require copies of all building permits and contractor SoWs/change orders/invoices in your LOI or Purchase Agreement as part of your formal diligence. In our experience, the bigger operators who have their own in-house trades, are more difficult to verify.

When you cannot verify an expense, or when it seems out of line with comparable properties, use your own judgement and give yourself a buffer.

Just remember, you are buying based upon current and past performance ... the what ifs are entirely in your court and you should not be paying the Vendor for future potential.

Unacceptable.  Regardless of whether the REA wants to do what they feel is unnecessary work or not, a potential buyer should be given information to make a proper analysis to reduce the workload up front.  

If I'm the buyer, give me the data; not excuses.

This is a red flag on day one.  

Might be a good buy though...

Is the Realtor the one listing or a potential buyer's agent?  As other said if it is a buyer's agent, you need a new one.  Talk to the broker if you have a contract with the agent - they should have an agent who is more suitable.

A proof of funds and non-disclosure seems reasonable for access to the financials.  If the agent won't request them without you writing a contract, tell them you can't price your offer without the financials :)

Wow! Thank you all for the responses. I will certainly heed all the advice about finding an agent who is more knowledgeable with commercial properties. This agent did tell me she does not do a lot of commercial transactions. 

@Roy N.  Thanks for the walk-through of your process. That gives me a good idea of what to do next. I agree with you and @Steve Olafson   about the sellers and their financial records. I have purchased small rental portfolios on two occasions and learned both times about how people keep records...

Any suggestions about the property? price, rents, etc.? When I do my napkin math, it looks like the following:

Gross rent would be 127440/yr at 90% occupancy
Taxes at 10k, (from what I can tell, taxes are based on 12% cap rate)
Insurance at 7k, (This is not a quote, but a guess on my part)
Water 15k/yr - (I saw a 40 unit that had a 20k/yr water bill)
Debt service 42k/yr for 15 yrs (me putting ~20% down borrowing ~450k)
Maintenance/repairs 26k/yr (figuring by 20% of gross rent)
It looks like to make decent return, I need to offer closer to 600k, or possibly a little less. 

Am I missing anything?

@Josh James  

I guess snow removal's not really a factor for you ;)

I would chase down a few of those numbers before putting any sort of LOI out to the Vendor. Taxes you should be able to look-up ... and adjust according to the delta between assessment and your offer (if offer is higher). Call and get an insurance quote - your costs will be different as your operating history is different.

If the Vendor or their agent continue to be lazy and not provide you with financials up-front, then I would assume they will be equally lazy during formal diligence and include a "pain in the ***" factor in my offer.

I would then draft my LOI, stating that given the absence of hard data on which you could draw for analysis, you have had to make the following assumptions ... then list them out.

Give yourself lots of buffer in those assumptions and don't be afraid to offer 20+% below ask.  If they are not motivated, they will dismiss you, if they are motivated, but lazy, they will counter and {hopefully} provide you the real information needed to revise your numbers.

@Josh James  

It is not common to be able to get an 80%LTV on a commercial loan. Most of the loans on building this size in my personal experience are closer to 65-70% LTV. The bank will also want to see a track record. That said, perhaps you have a relationship that makes all the difference!! Curious to see what LTV you get a commitment for.

Things I don't see explicitly mentioned in your quick $ breakdown. 

* Turnover

* CAPEX (although you might have that in your 20% maintenance - but depending on the state of the building that could be high or low)

* Property management (unless you plan to run it yourself). Even if you don't run it yourself, give yourself some budget for expert help - bookkeeper / cpa etc..

* Landscaping (if applicable)

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