Apartment Building Schedule E Surprise

[Frank Jennings]

I have an apartment building under contract. The owners reported a net operating income of $27,500. This was the NOI listed on the MLS and all the paperwork that they gave me. My lender requested the Schedule E and I just looked at it. For 2018 the net operating income is $21,500. And in 2017 the net operating income is $3500. Can I walk? Should I walk? Should I just base it on the 2018 numbers and find a way to close the gap there?

[Edward Liu]

For schedule E from seller, did you remove depreciation, interest payment, when calculate net income?  Key for me from seller schedule E is look at utility cost, insurance, property tax, or maintenance items that are unique.  

You should ask for cap Ex sheet in seller tax return for this property and see if seller has tried to shift normal maintenance cost into Cap Ex to make net income look better.

You can definitely walk during due diligence period for any reason.  It depends on how strongly you feel about this deal.  The good news is at least you have seller schedule E - many sellers don't provide them.