What documents to request for Multifamily offers?

Question

Hi BP Family,

I am making an offer on my first multifamily building ever, so I want to know what doc's to request when making an offer.

It is a 8 unit building with around a 9% cap rate. There are two store fronts and 6 residential units total. The owner had it for 30 years and is retiring.

I want to ask for the below documents:

Current leases or one year of rent receipts to verify rent

2 year schedule E for the property

Then I ran out of ideas. Would the experienced buyers please help me out?

Nazz

William Yeh · Answer

Hi Nazz,

Leases are a must. In addition, I'd request estoppel certificates from all tenants. This is typically delivered as a due diligence item over the course of escrow and negotiated into your purchase agreement so have your agent include that clause.

If they have financial reports, I'd request those too so that you can dissect how they arrived at the 9% cap rate advertised. Note that your property taxes are going to shoot through the roof once you acquire it so make necessary adjustments on your pro forma to reflect the hit to cash flow this will cause.

I'd also request the maintenance records on the building and on the individual units. That combined with the help of an experienced building inspector will reveal how much useful life there is on the big cap ex items (HVAC, water heaters, roof, furnaces, etc).

If you're working with a lender, now would be the time to get them involved. They should have their own due diligence items that they want to see to underwrite the loan, all of which you should be screening as well in your DD.

May I ask where the property is located?

Hope this all helps.