Rental Property Investor · Harrisburg, PA · Member since 2019 · 77 posts · 20 votes
Hello All,
I am trying to purchase a 5 unit in PA. I had requested the following information from the seller.
1) Annual property operating data for the last 12 months.
2) Current rent roll
3) Past rent roll for 12 months.
The sellers agent came back and said- nope!
The seller apparently doesn't have that information and told me to just go through the information provided on MLS. What would you do in such a situation.
Also, I am new to multifamily purchasing.
What documents do you absolutely need from the seller before making an offer on the property?
Rental Property Investor · Johnson City TN · Member since 2016 · 386 posts · 271 votes
7y
@Account Closed - We requested a schedule E and occasionally get it. You are correct, expenses reported on a Schedule E may be significantly different than a P&L.
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
7y
@Account Closed if the seller will not give you the info, which is regularly the case on smaller deals like this you need to do you own calculations to determine if the deal will work. The main thing you need is a copy of the leases. I would not move forward with out that unless its a slam dunk of deal. You should be able to determine market rents for the area and general operating costs for this type of property. You need to figure out if the units are metered separately for utilities and things like that. A locl PM company can be a lot of help with due diligence and operating cost estimates.
Rental Property Investor · Twin Falls, ID · Member since 2019 · 25 posts · 11 votes
7y
We had a seller refuse to give us that kind of information, and we just walked away.
You could always go door to door at the property and ask, but it's hard to get hard info that way.
At the very least you _need_ to see leases for all the current tenants to make sure you know what they are supposed to be paying (and what rights you have to evict them if you need to).
If there are no leases, check your local laws, but in those cases I'd assume you're going to have to evict everyone and start over. A couple people will be ok and sign your new lease, but just assume 100% turn over and then re-examine the deal and decide if you still want to dive into it.
Rental Property Investor · Los Angeles, CA · Member since 2018 · 49 posts · 46 votes
7y
Hi @Account Closed, you also want to request leases. If there are no leases when you become the new owner, it could lead to headaches with your newly inherited tenants. If the property is under some sort of rent controll, you want to check the status with the proper authority.
Are you using an agent familiar with multi-family? It may seem annoying, but keep asking, even if it's in different ways. In multi family transactions, I have rarely gotten all of the information I wanted the first time I asked. It may seem surprising but a lot of smaller landlords don't keep great records. If they really don't have records, which is sometimes the case, send over a list of questions in writing. i.e. When was the last time the roof was repaired? Have tenant's been late on rent? Did tenants pay a security deposit, will it be credited to me in escrow? Ask questions about inspection findings, if pertinent. etc.
I'm not sure what's included in a transaction in PA, but if completed properly, the disclosures should have some info related to major repairs made.
Every investor is different, personally on a building this size, I feel like I only NEED leases and current rent rolls. I find the inspections are enough information to know what I am in for as far as future repairs.
It's tough dealing with "mom & pop" sellers - don't expect to get great records. They should be able to provide a crude rent roll and provide utility expenses. You can ask about the taxes/insurance but you should just pull the tax expenses from the city/county and get an insurance quote yourself. Easy enough. Look online and talk to brokers to determine the market rents. Make sure that you have a broker on your side, unless there's a reason not to.
Once you have those, you should be putting together your own underwriting based on the in-place cash flows, as well as your stabilized proforma @ market rents, your estimated RET upon the sale, and your insurance quote.
Once you feel comfortable with your analysis, you can make an offer via and LOI (letter of intent), and make the PSA contingent upon receipt of all required due diligence if not yet received. At that point, You'll want to make sure that you at least have copies of the utility bills and the leases, to verify the rents at the property.
Again, it's tough trying to get good info on these small deals, especially if they don't think you are serious. You need to come with own analysis, get comfortable, make an offer, and then make the PSA contingent upon getting the rest of the due diligence.
Rental Property Investor · Harrisburg, PA · Member since 2019 · 77 posts · 20 votes
7y
Thank you all for your super helpful responses.
Has anyone asked to see the schedule E tax form of the seller for the property as part of your due diligence? Wouldn't this be the best way to see their income and expenses. It's unlikely anyone would be tempted to claim high income and low expenses on schedule E.
Has any seller ever given their schedule E tax form to you?
Rental Property Investor · Johnson City TN · Member since 2016 · 386 posts · 271 votes
7y
@Account Closed - We requested a schedule E and occasionally get it. You are correct, expenses reported on a Schedule E may be significantly different than a P&L.
Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
7y
Rent roll and leases. Everything else you should have your own assumptions on.
I've never understood people that ask for tax returns; etc. I would never hand that over myself & I've never had any client hand it over either. All depends on your market though. Also many people own more than one property under an LLC