Stuart, FL · Member since 2018 · 27 posts · 5 votes
We are under contract for a motel/rv park that is a value add site. Seller has not been able to provide any due diligence including contracts with long term rv tenants, proof of income in any way, proof of any expenses and now proof of insurance. Is this lack of available information normal? Should it be a red flag for any reason? TY for the feedback!
Rental Property Investor · Russellville, AR · Member since 2014 · 684 posts · 509 votes
3y
I've run into sellers who have almost no paperwork. I don't automatically run from the deal. A lack of organization and accounting doesn't mean its a bad deal, it just means you have to be sure you can make the property do what you need it to do. My experience with this type of owner is actually pretty good. A lack of records usually means a discount in price!
Can you talk to the tenants? They may be able to answer your questions (somewhat)!
Rental Property Investor · Russellville, AR · Member since 2014 · 684 posts · 509 votes
3y
I've run into sellers who have almost no paperwork. I don't automatically run from the deal. A lack of organization and accounting doesn't mean its a bad deal, it just means you have to be sure you can make the property do what you need it to do. My experience with this type of owner is actually pretty good. A lack of records usually means a discount in price!
Can you talk to the tenants? They may be able to answer your questions (somewhat)!
Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
3y
So I haven’t done much on that property type specifically but on single family / smaller multi, I’ve met MANY a small time mom pop style landlord who really truly has NOTHING for their paper trail… many a time you figure out 1/2 their units paid in cash and they may not have had to report to taxes…And they weren’t really running things like a business owner, but almost like an employee who hated their job or didn’t really know what to do.. etc etc etc… I can almost imagine your seller could possibly fit that same mold. If so, it’s not a true red flag IMO, but it’s something to be aware of and add to the negotiations of why you need to buy this for ____ (whatever price discount compensates for the added risk of lack of DD). just my $0.02.
I've run into sellers who have almost no paperwork. I don't automatically run from the deal. A lack of organization and accounting doesn't mean its a bad deal, it just means you have to be sure you can make the property do what you need it to do. My experience with this type of owner is actually pretty good. A lack of records usually means a discount in price!
Can you talk to the tenants? They may be able to answer your questions (somewhat)!
Thank you for your response. That is my other concern. The current cap rate for deal is a bit over 4% but that is assuming the seller is presenting accurate numbers. I tried to negotiate for a deal over 5% cap but they weren’t interested in that low offer. Not sure if I’m second guessing out of fear to move into a larger space or just truly concerned about some issues that have come up?
So I haven’t done much on that property type specifically but on single family / smaller multi, I’ve met MANY a small time mom pop style landlord who really truly has NOTHING for their paper trail… many a time you figure out 1/2 their units paid in cash and they may not have had to report to taxes…And they weren’t really running things like a business owner, but almost like an employee who hated their job or didn’t really know what to do.. etc etc etc… I can almost imagine your seller could possibly fit that same mold. If so, it’s not a true red flag IMO, but it’s something to be aware of and add to the negotiations of why you need to buy this for ____ (whatever price discount compensates for the added risk of lack of DD). just my $0.02.
I hear you. And I agree. I think my doubt is causing me to second guess the agreed upon price at the moment to deal with the issues and risk I am having to work with to make this come together. Thank you for your feedback.
Rental Property Investor · Ocean Springs, MS · Member since 2022 · 349 posts · 301 votes
3y
Is the 4% cap rate based on their numbers that they cannot backup or based on your due diligence? If it were based on their word, I would be fearful also.
Is the 4% cap rate based on their numbers that they cannot backup or based on your due diligence? If it were based on their word, I would be fearful also.
That is based on their P&L that seems to be full of fluff.
Is the 4% cap rate based on their numbers that they cannot backup or based on your due diligence? If it were based on their word, I would be fearful also.
That is based on their P&L that seems to be full of fluff.
That's an absolute cause for concern. 4% is already pretty slim, fluff could bring it to 0% rather quickly.
Irvine, CA · Member since 2016 · 545 posts · 614 votes
3y
@Christina Luton If the numbers have some fluff in them, they can't tie back to the Financials, and they aren't willing to take a lower offer, they are looking for a sucker, an inexperienced investor, or a gambler to do this deal.
I see deals all the time that are crap, yet I see people buying them, I also see these same assets showing up for sale 3-5 years later when that gambler bet didn't payoff.
If you're an investor, and your intent is to use the property as its current use type, I wouldn't do this deal as it is bad business, especially in this category.