I'm a newbie investor. What time tested techniques are there to confirm rent collected when compiling your data for analysis? My farm area has wild swings of the rental pendulum rendering rentometer less effective than I'd like. It also appears that no one is being honest about the rents they're collecting. Thanks for the help.
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
7y
@Luis Bermudez the only way to be really sure is Estoppel Certs. Ll can inflate a rent roll for sales and for mortgages it is fraud. Or they will deflate for taxes.
Your eval process has to overcome that. Know your rents and review all leases and balance rent roll to income statement.
If in doubt get a Estoppel cert for each tenant.
Also make sure you get last months rent and security deposits at closing. Good way to start your reserve fund.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
7y
@Luis Bermudez Due diligence is typically done after you have a property under contract. Before then the agent or the owner will have a disclosure and/or income/expense info to share with you to give you a basis for your offer.
Once the property is under contract that is when you want the seller to prove to you that what they claimed during the offer process is actually how the property is performing. This can be done several ways, but most commonly through:
- assignment of lease doc signed by seller which outlines the monthly rent, security deposits, lease term, utilities owner/tenant are responsible for and if the current tenants are up to date with rent
- estoppel agreements which basically have the same info as assignment of leases, but the tenants verify and sign off to all of the info
- copies of current leases which should match the info outlined in the assignment of lease and estoppel docs
Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
7y
@Michael Noto is correct that you do it during due diligence (DD) and confirm with bank statements like @Account Closed says if its a mom and pop owner operator. During DD review all the leases and confirm that you see deposits matching each lease amount. It's a straight forward process but go slow and make sure everything meets your expectation.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
7y
It is common for sellers of smaller multifamily to over state rents. This is done to deceive people into believing the investment is better than it actually is, so they can sell it faster at a higher price. There is "potential rents" and there is "actual rents". Potential rents is the fair market value of a unit. It is the value you could expect to get if you had a vacancy and rented it today. Actual rents is what the current owner has collected over the last 12-24 months. It is total income and doesn't normally match the monthly rent rate. That is because actual rents includes some vacancy, older rent rates, missing rent payments, etc. Ideally the owner would provide a copy of their taxes for the property or a certified income and expense statement. Certified means signed by the owner and a third party CPA. Most sellers will not provide this, usually because they are marketing numbers don't match.
As others mentioned, you can get estoppel from current tenants so at lease you can verify rents and deposits.
Most every seller misrepresents information and covers up problems. Never trust what they tell you. Verify on your own.