Multifamily Offer contingencies

13 Replies

Hi BPites,

As we all know the MFR market is pretty hot and deals are far and few between. A strategy I have been following is to make few offers every week without seeing each and every property. I strike out almost 100% of the time in this hot market. But anyways, I wanted to ask if someone had a list of recommended contingencies to put on their offer so it is easy to get out of the deal or re-negotiate the price if the condition, income or repairs are worse than the pictures or details provided and avoid losing earnest and option $$.

  1. How to include a repair credit/inspection contingency in the offer (verbiage) ?
  2. Should the offer include who will pay closing costs? (typically seller or buyer pays)?
  3. What would be a contingency to get out of the deal if the rent rolls/ operating statement or lease info is not-verifiable or turns our to be false ?
  4. What sort of financing contingency to put on offers (what if my lender denies the loan based on the MFR income reported)?

If anyone is willing to share a comprehensive MFR offer template, I will be very grateful. Thank you

The price and terms you are offering might not be the only reason that you are batting zero on your offers. In this competitive market sellers can be choosy with their buyers. They want certainty of closing and a buyer that they know can and will get the deal done with minimal hassle and no renegotiation.

So submitting offers without touring the properties isn’t doing you any favors. Brokers just say “here is another guy wallpapering the city with offers”.  Instead, tour the properties, inspect them thoroughly, and submit your offer with only a contingency for due diligence (which essentially allows you to cancel for nearly any reason and is commonly used in the multifamily space).  This shows the brokers that you are a serious buyer for the property and not just an offer writer that will sort out the real terms during escrow. 

As an added benefit—as you tour deals you are building relationships with the brokers and building that trust that gets them to recommend you as a buyer to their sellers.

If touring the properties is too much workload or travel for you, get a partner and make that their role; while your role is sourcing deals, underwriting financials, and making offers. You probably have to share some of the profits with your partner but if it increases your hit rate on getting awarded deals, you come out ahead.

Your competition is likely submitting offers with a 30-day due diligence period and then 30 days to close and few to no other contingencies. If you can’t compete with those terms you’ll probably find it tough to connect on the offers you’re writing.

@Yuvaraj Vimawala I would second what Brian Burke said. When I offer these days it is usually all cash no contingencies so that I am the most competitive offer other than on price.

Having said that though, I appreciate the 'just throw out lots of offers and see what sticks strategy as well. As long as you include a 'due diligence' clause saying you can cancel the contract at the end of that period you should be covered.

Not sure why you are even worried about who pays what closing cost if you're in a hot market and are a serious player.

Thanks @Brian Burke  and @Jeff Kehl . The market that I am, is so overpriced, usually the seller and I are not even in the same universe, touring is just a giant waste of time. At least of what comes on market, every listing is negative cash flow and competition is simply betting on appreciation. That is why I am looking in other cities in Texas now. 

I am up for all cash offers and also covering closing costs, just looking for a template which covers all aspects of an MFR offer. Can either of you share the due diligence verbiage or an offer template?

@Yuvaraj Vimawala for that size of property the local Association of Realtors typically has a contract with standard provisions and check-the-box contingencies and terms.  Commercial agents use these all the time to write offers.  If you aren't working with a commercial agent you could use forms like the ones from Professional Publishing that are somewhat similar to the Realtor's forms.  And some commercial brokerages have fill-in-the-blank contracts of their own as well.

Once you get to larger transaction sizes you'll start to see the letter of intent used for offers, followed by formal purchase agreements written by your real estate transactional law attorney.  But for smaller deals like 4-15 units (probably even up to 25 to 50 units) pre-drafted contract forms are very common even at the initial offer stage.

If you are buying in Texas, the TAR form works fine.  as @Brian Burke mentioned, you can check the boxes.  We also always add our own exhibit that adds to and clarifies some of the requested documents.

At this time in the market, the fewer contingencies that you have, the better your chance is getting the deal.  Be prepared for sleepless nights once you get a signed contract.

If you want to land deals without looking at them, then I would come in strong with little to no contingencies. Maybe a short inspection period with the required leases, P&L's, tax returns, etc. 

You would be better served looking at the deals if you want to buy something. Also for the 4-15 unit deals you should be doing cold calling and sending letters. 

Hello,

We have possible deal in Midwest for a multifamily . Have few questions.

1 .Can we have financial , inspection due diligence contingencies in the offer for multifamily building when the property is under contract by whole seller ?

2.How do check with seller or from any source if we have any hoarders or squatter tenants in the building?

3. Do you guys recommend good commercial multifamily real estate attorney in Iowa(we prefer) or somewhere in Midwest ?

Hello Adil,

1. Yes, you can and must have all the above contingencies in the contract whether you are buying from a wholesaler or through a broker and make sure to check the timeline.

2. During your physical inspection and due diligence period and also must do a financial audit too.

3. I do not have any recommendations of attorney for that area but you can go to our facebook group or other facebook group and ask for recommendations.