Seller will not provide bank statements in due diligence

Multi-Family and Apartment Investing
7yFollow

Seller will not provide bank statements in due diligence

Kyle Mitchell
Multifamily Syndicator · Greater Los Angeles Area · Member since 2015 · 399 posts · 261 votes

Hi everyone,

Has anyone come across the seller not providing bank statements during due diligence?  Is this a red flag or something that is common?  Just looking to see how hard I should be pushing on this issue.

Thanks,

Kyle

0Reply
123 views

Most Popular Reply

Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y
Originally posted by @Kyle Mitchell:

@Henri Meli I don't think there's a law that states you have to give anything during due diligence, is there?  So when I ask for copies of leases, contracts, warranties, etc.  Why would they have to give me anything?  

@Chris Mason I am asking so I can confirm that what they say the property is generating in income is what it's actually making.  

 More common ways to validate that:

- Estoppels. 

- Schedule E with SSN and other properties blacked out.

- Talk to the tenants while viewing the property during your inspection period.

- Instead of the full bank statements, ask for transaction summaries... like where you search your account for "$2350" and it shows you all $2350 transactions for the last 12 months. Note that this only shows you when the landlord deposited the check, it won't show you if the tenant did/didn't have their rent in by the 1st, since most landlords deposit all their rent checks on like the 8th or 12th. This would also be unusual, but less unusual. 

I wouldn't hand over bank statements to a buyer, either. 

14Reply
See this reply in the discussion

50 Replies

Jump to latestLatest
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Kyle Mitchell:

    Hi everyone,

    Has anyone come across the seller not providing bank statements during due diligence?  Is this a red flag or something that is common?  Just looking to see how hard I should be pushing on this issue.

    Thanks,

    Kyle

     This is an usual request, what is the purpose? 

    2Reply
  • Henri Meli
    Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes
    7y

    @Kyle Mitchell I don't believe that providing bank statements is a requirement. So, why should he/she? If there is no law that forces him to do so, why should he? 

    2Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    In order to audit the rent roll and ensure the rents are actually being paid it is common (at least for me) to balance it to the bank statement. Why would the seller have a problem with this request?

    1Reply
  • Kyle Mitchell
    OP
    Multifamily Syndicator · Greater Los Angeles Area · Member since 2015 · 399 posts · 261 votes
    7y

    @Henri Meli I don't think there's a law that states you have to give anything during due diligence, is there?  So when I ask for copies of leases, contracts, warranties, etc.  Why would they have to give me anything?  

    @Chris Mason I am asking so I can confirm that what they say the property is generating in income is what it's actually making.  

    5Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Kyle Mitchell:

    @Henri Meli I don't think there's a law that states you have to give anything during due diligence, is there?  So when I ask for copies of leases, contracts, warranties, etc.  Why would they have to give me anything?  

    @Chris Mason I am asking so I can confirm that what they say the property is generating in income is what it's actually making.  

     More common ways to validate that:

    - Estoppels. 

    - Schedule E with SSN and other properties blacked out.

    - Talk to the tenants while viewing the property during your inspection period.

    - Instead of the full bank statements, ask for transaction summaries... like where you search your account for "$2350" and it shows you all $2350 transactions for the last 12 months. Note that this only shows you when the landlord deposited the check, it won't show you if the tenant did/didn't have their rent in by the 1st, since most landlords deposit all their rent checks on like the 8th or 12th. This would also be unusual, but less unusual. 

    I wouldn't hand over bank statements to a buyer, either. 

    14Reply
  • Kyle Mitchell
    OP
    Multifamily Syndicator · Greater Los Angeles Area · Member since 2015 · 399 posts · 261 votes
    7y

    Thanks @Chris Mason, I have also asked for a Schedule E and they are declining that as well.

    0Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    7y

    Hi Kyle,

    Have you thought about asking for Estoppel Certificates?

    Good Luck!

    1Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    I think more typical that is obtained from tax return schedules (not the full tax return).

    1Reply
  • Ron Fletcher
    Leclaire, IA · Member since 2016 · 161 posts · 130 votes
    7y

    @Kyle Mitchell

    How many unit building is this? If it’s a smaller property you should be able to get a handle

    On rent potential from nearby properties. Base your calculations on that but be sure to buy it at a significant discount because he probably has delinquent renters that he is reluctant to reveal. Plan on some turnovers.

    1Reply
  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Kyle Mitchell It's easy to understand that you need to verify the rent roll and operation expenses.  If the seller will not supply you with the documentation to back up what he claims are his income and expenses you need to adjust your offer based on what you can verify.  

    9Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Kyle Mitchell. I could give you a property statement but I’d never give you bank statements

    1Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    7y

    @Kyle Mitchell Profit and Loss (P&L) statements, Trailing 12 (T12), and Estoppels are common, sometimes Schedule E. Never heard of bank statements myself, and not sure I'd be comfortable with that as a seller. I only really like to show P&L/T12 and estoppels, because if the president doesn't have to show his, I don't want to show mine either.

    2Reply
  • Gwyeth Smith
    Rental Property Investor · Huntington, NY · Member since 2016 · 102 posts · 74 votes
    7y

    @Kyle Mitchell I have encountered similar issues.  Many times it comes down to the seller co-mingling properties/business in one bank account.  I'm actually trying to filter out the "irrelevants" on some financials a seller has recently provided me.  I'd say follow your gut on this.  If you feel the seller is trying to hide something from you, either account for that in your offer or walk.  If it stems from mis-management it might be an opportunity.  Ask the seller how he suggests you verify financials without statements (i.e. does he have operating statements from management co?)

    8Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    @Kyle Mitchell

    Brokers encourage seller, or borrowers to provide bank statements when they can’t prove income based on tax returns. You can set your own criteria. If that criteria is not met, you walk away. However, if that criteria is not one accepted by the market, you may always be walking away.

    Providing bank statements by sellers is more common now than it ever was.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    7Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    Why would the seller have to provide bank statements?

    1Reply
  • Al Pat
    Rental Property Investor · Atlanta, GA · Member since 2016 · 325 posts · 253 votes
    7y

    @Kyle Mitchell I have never asked for it nor would I provide it. However, being in this business long enough, I know what would the property bring in for rent. I do request to review current lease agreements for properties and all individual tenants. For duplex or single family house, this request is odd. For multi family properties, get rent roll and leases for review. I typically get this after my offer is accepted and earnest money is deposited. I can adjust my offer as I have contingency clause in it.

    2Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    7y

    We always ask for bank statements and have always received them. Most companies purchasing multi-family do the same. This ensures that the tenants are actually paying rent. 

    I would get tax statements & estoppels for sure. Why anyone wouldn't have over a bank statement, but would be ok with handing over taxes is beyond my comprehension, unless they are hiding something. 

    3Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    7y

    How big is the building you are purchasing? Asking for bank statements is not the norm from what I see in the transactions I am involved in. There are other ways to do it.

    Here are a couple that I know of:

    1. Have the landlord sign an assignment of lease doc that your lawyer can draft up which is basically the landlord stating that what is outlined in the lease is actually happening in terms of monthly rent amounts, amount being held in security deposits for each tenant, and if the tenants are current on their rent as of the date of the closing.

    2. Have the tenants occupying each unit sign an estoppel agreement. This is basically the tenant verifying everything you had the landlord verify in the assignment of lease doc.

    3Reply
  • Oleg Shalumov
    Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
    7y

    @Kyle Mitchell if the seller not showing the bank statement, just ask him how is he going to prove the income he is getting. If he provides the alternative solution that is good enough for you, then go for it.  

    Also remember, sometimes the best deal is the one you did not make. 

    3Reply
  • Account Closed
    Property Manager · Winston Salem, NC · Member since 2016 · 63 posts · 27 votes
    7y

    In NC YOU CAN REQUEST the lease forms and statements. There is a legal document that was created years ago and a lot of people request for the prof. If books were kept up with it should not be hard. As far as bank statements I don’t think that means too much because they could have just raised the rents/lowered, they could be just not paying their bills. Evacuee of bad management. 

    1Reply
  • Bill F.
    Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    7y

    @Kyle Mitchell

    I think you are seeing the divide between investors with residential (less than 5 units) and commercial (5+ units, NN, MHP) experience pop up in this thread.

    -On the residential side, I've never heard of/seen of bank statements/tax returns being provided. 

    -On the commercial side, I've never NOT seen bank statements and/or tax returns provided. Uusually once the proverbial ink is dry on the P&S they get sent over.

    The problem with not having bank statement/tax returns, beyond the obvious of not verifying the pro forma, is getting a loan. The commercial lending departments will want to see bank statements/tax returns to underwrite the property, since they aren't really loaning on your credit, but the operations of the asset.

    Estoppel certs/certified rent roles are a great way to get on the same page with the tenant in terms of rent rate/security deposit, but, at lest in my experience, don't cut the mustard with the bank. 

    I like @Bob B.'s idea. Put the ball in the seller's court by asking "how do I verify your numbers?". If they don't want to provide those docs, make them come up with a solution. 

    7Reply
  • Karen Schimpf
    Lender · Nat'l Commercial Mtg Lender - Round Rock, TX · Member since 2014 · 916 posts · 235 votes
    7y

    @Kyle Mitchell,

    For due diligence, the seller typically provides the P&L's or 12T or Schedule E and rent roll.  For financing, the lender does not need the seller to provide bank statements, it is the borrower that provides bank statements to show they have the funds for the down payment, closing cost and reserves for a conventional or agency. 

    3Reply
  • Barry Sanders
    Brooklyn, NY · Member since 2018 · 79 posts · 30 votes
    7y

    @Bill F. is a 100% right on this, the reason there is such a big disagreement here is people aren't talking about the same unit sizes

    An estoppel is not proof that rent is being paid its just proof of what rent is supposed to be paid (physical vs economic vacancy), it protects you after the sale so residents cant say their rent was lower than it actually is or they have special privileges they really don't

    Don't wait until after you buy to find out who has actually been paying. If they aren't willing to give you the financials or a third party to audit it then you really wont know what you are purchasing or how much money you will need to have in your operating account 

    Requesting bank statements before you are in a binding contract however would be unusual

    3Reply
  • Scott Morongell
    Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
    7y

    @Kyle Mitchell this is not common, you want to get them and verify your assumptions before buying the deal.

    0Reply
  • Ben Haab
    Member since 2017 · 36 posts · 24 votes
    7y

    Why would history matter?  You need to understand what will happen in the future.

    Items you want to know and where to get them:

    Rent/Income - copies of leases.  Collection of historic rent doesn't matter unless you don't understand the neighborhood and typical vacancy/lost rent.  Unless you plan to use the same property manager and run it the same - you control collections.

    Taxes - get them from the county/city.

    Utilities - get it from the utility provider if you have to pay for them. Or ask seller for copies.

    Repairs - history doesn't matter.  You can assess the property condition and make assumptions on repair rates.

    Management expense - get a quote

    Rent rolls only matter to me on: of the current tenants who MIGHT/WILL be an issue once you own it.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free