No access to tax returns until under contract??

Question

Hi all,

This really shocked me but have been told this is very 'normal'.  I'm interested in a multifamily property in Norfolk VA but need a bit more information to do my due diligence and complete at least a reasonable analysis.   When i asked for the following information, the sellers agent told me that he'd be happy to give it to me once under contract.  Isn't that too late???  I suppose I'd have to go under contract with a number of contingencies?   Is this typically a red flag regarding the condition of the property?  I read this as they have something to hide.   What do you all do in this type of scenario?  Do you lower your offer even more to offset the risk associated with not being able to verify certain information?  I have not visited the property yet because I live in Arlington and didn't want to make a trip down until I at least could verify some of the bigger items that went into my analysis.   Am I expecting too much?  Anyway, would appreciate any insight.

Patti Robertson · Answer

Agreed @Russell Brazil.  Personally I don't care if the current tenant is paying the current owner or not.  I actually think I get a better price from a landlord who has a tenant in default. I am fortunate that in Virginia we can evict in as little as 6 weeks.  Generally when I am buying a rental the current rents are almost always lower than they should be anyways. I always let the tenants stay, even if their rent is below market, but it really doesn't break my heart to move them out and start over. I generally don't believe anything any self employed person says on their tax return.  I can make an educated guess on utilities and most of the expenses.  I like to see the actual bills, and honestly trust them way more than I would trust a tax return.  To each his own I guess.

Russell Brazil · Answer

As a listing agent I almost never provide tax returns to a buyer. An educated buyer doesn't need them, and an uneducated buyer is going to misinterpret all the write offs people use against their properties like mileage, cell phones or whatever other business expenses whether legitimate or not people assign to their business.

Llewelyn A. · Answer

@Patti Robertson

The lease is proof that a tenant signed a lease agreeing to pay the terms of the lease.

It is not proof that the tenants actually have paid that way!

If you were to examine the Business' tax returns or the Schedule E for 2 years, you will see if the tenants are having problems or verify that everything is great and that you can make a sound and solid offer.

You can also discover if there were any deferred maintenance, legal problems, etc.

Also, not every Broker/Agent will be on top of their game.

I usually throw out the numbers given to me and just do my own, adjusting for vacancies, late payments/evictions, etc.

Also, the Agent's fiduciary responsibility is to get the best deal for the Seller, not the buyer. Agent works for the Seller, in other words.

If the Agent was working solely on my behalf, then maybe I would trust the information provided to me which was not verified by a Tax Transcript.

Ultimately, when I do need to get a Mortgage, 2 years of the Seller's schedule E is going to be used. I don't want to waste my time, money and effort finding out that the disclosed information had an error, was missing or completely fabricated.

I really would like the Broker/Agent to make copies of the Schedule E and just wipe out personal information like SS#s give it to me so I can just say, great.... let me sign the contract.

This way of conducting business always makes the Buyer Beware and the Buyer has a reason to be suspicious of the situation.

Then, when the bank requests the information from the IRS, I'll match it with what I have.

Any discrepancies, my lawyer get involved.

I actually don't have a problem getting any information I need these days because I only deal with Brokers/Agents that I have purchased properties with and they know I'm not wasting their time. I also own enough properties that Brokers/Agents that I don't know tend to give me what I need.

However, when I wasn't as well known in my area (or at least it's easy to find my name on expensive multi-family properties), this was a serious issue for me.

Ultimately, Brokers/Agents that worked with me earlier on in my career that disclosed the information with me honestly got my business and make a lot of money from my transactions.

I don't expect my postings to change the way things are done, but I'm just venting from my earlier RE Investing Career.

Investor Llew

Patti Robertson · Answer

@Kristina Inglis - Maybe it is the items you asked for? Asking for a rent roll and property expenses - or at least the info that would be on them prior to submitting an offer is customary.  In fact if the property is listed this info is generally included in the listing.  I've never asked a seller for their tax return, and I would never be willing to show my tax return to a buyer.  It's just not necessary or relevant.  The only things that are relevant are the current lease terms, the property expense, and any proof of improvements you want to request.

Jason Hirko · Answer

@Kristina Inglis This is very common. You usually have a feasibility period or due diligence period where all of these documents are disclosed. If you are just looking for one piece of information, the agent will likely give it without giving the whole document, but it is to prevent tire kickers from wasting everyone's time

Kristina Inglis · Answer

Thank you all for taking the time to weigh in. I can see why a seller may not want to hand over their tax return to every investor inquiry.  I guess when I say tax return, I meant specifically Sch E.  But, again, I relate to why one would not share this until they are certain that someone is committed.   However, what I cannot understand is why they wouldn't provide answers to the best of their knowledge, regarding maintenance, capital improvements etc.  The realtor would not give me any of this info.  No matter now, I'm moving on from that property but this was a good 'eye opener' for me.  Thank you again, all.

Steven Hamilton II · Answer

I get requests about tax return consistently. I will mention that a big item of question is repairs and maintenance, capital improvements. Many buyers will want to know when those things were done and have proof of it. I don't want to hand my tax information to every person that thinks they are interested in my property.

Patti Robertson · Answer

@Kristina Inglis - Isn't the lease proof enough of their rent roll though? Providing the tax return isn't SOP in my area.  We rely on the rent roll, leases, and actually operating bills.

Kristina Inglis · Answer

Right???? @Thomas Gagnon   I just don't get why they wouldn't share proof of their rent rolls. Especially if there is nothing to hide.  I just want the verification and would move on.  Doesn't seem to be that big of deal to me but since I've not been the sellers end of this equation it is very possible I'm missing something.  And I'm still really shocked that asking for the date of the last roof replacement would warrant the request for an official contract.  Either way, thank you all, this has helped me better align my expectations.

No access to tax returns until under contract??

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