I am in attorney review on a 3 plex in Newark NJ. This will be my first investment property. Couple things are turning me off and curious if I am justified:
1) Property is fully occupied, but the seller does not have Green card and is saying I have to get it. My attorney feels this is a MAJOr red flag
2) the seller does not have proper pay history on current tenants stating that the property is so small they did not keep this kind of documentation.
3) I saw the property and it visually looked good. Recently renovated. We are trying to schedule the inspection and the buyer is dragging his feet. Not responding to request to get in with the inspector.
I am leaning toward walking as it seems really sketchy, but being my first investment, I am curious of this is normal or my intuition is correct and I should walk. I want to not spend another dime if it does not make sense. Thoughts?
congrats in getting your first place in review!
1. Seller needs to get the green card plain and simple, assuming its market value. If you are getting an insane deal than, idk maybe not, but truthfully they should have been maintaining their green card under the law so they should get it. I am not super educated in the green card knowledge market but anytime I've sold a 3 or 4 plex the seller has provided it no questions
2. If he is not a professional landlord just a small mom and pop. He may not have this info, that wouldnt surprise me. If the numbers make sense, I wouldnt see this as a deal breaker, but i would probably budget some money in case you have to deal with immediate turn over or evictions, plan for the worst and hope for the best. If the tenants dont pay rent you can file for eviction and get your own tenants in there anyway.
3. You have a right to inspect the property, sonic he isnt cooperating that is an issue. But maybe talk to them. they may be having trouble w the tenants confirming (which could be another red flag) but also. are you in review or are you under contract? Inspection period starts from once AR concludes and you go under contract (typically at least in nj)
Hope this helps. Best of luck!
@Robert Webb really appreciate the feedback. We updated the contract to reflect the above so the ball is in their court. Th is for your help!
All of your suspicions are valid. They need to take care of #1. #2 isn't that crazy with a small property, but they should have some verifiable records, only if by hand or deposits that they can check. This is a deal-breaker if you can't verify the payments because you may have tenants who have not been paying. It's one thing to see an alleged rent roll based on leases, but another to see all the payments being made on time. When you invest in anything you want clarification of it's past performance and this is no different. #3 is a no-brainer, but it can be difficult to do inspections and get all 3 tenants on the same page. Remember that all the tenants will think they are getting evicted so have no real incentive to help with inspections. I hope this helps.
@Jonathan Greene thank you so much- helps a lot. Appreciate it.
Sounds sketchy to me. Trust your intuition. And perhaps tell Seller that you want the property delivered vacant, so you can get your own, pre-qualified, tenants. Those existing, so-called "tenants," might be Squatters, hence no payment history.
@Judy P. Thank you for the advice! I like the idea of asking it be vacant. I will have to think about that as a strategy.
1.What kind of deal are you getting here? If you're paying retail, then you definitely want a green card. But if you're getting a good deal then I wouldn't worry about it and would rely on my home inspection to make sure that the house has a chance at eventually passing state inspection. I would think your home inspected would have some idea as to what requirements are needed for the state. If not then perhaps you should research and find out for yourself. The spring hinges on the exterior doors and flood Lighting in the hallways are just a couple of requirements of the state.
2. I would need to be able to get estoppel letters from the tenants and an agreement that security deposits reflecting the amount of rent will be transferred. Bank account deposits would help as well but there are a lot of landlords that'll really sloppy in this area. Especially if they've had the property for a long time and just aren't professional landlords. Again it would have to be a great deal for me to be okay with this or else I will need the property would need the property vacant at closing.
3. This one concerns me. First. I 'm a ittle confused because you're saying that the buyer is dragging his feet but I thought you were the buyer. Second, if it was recently renovated then they should be somewhat professional in their work and should have verified rent history. When did they buy the property? I'd be pretty skeptical. And really with all three issues going on , unless you're getting a great deal, I'd be ready to walk as well.
1) The green card isn't necessary to transact, but its purpose to assure you that your property is up to code... I'd suggest having some money left in escrow until the green card is obtained. Make sure the amount is enough to cover any necessary repairs as suggested by the state inspector.
2) This is interesting, I can't advise you here if you intend to keep the tenants. If there's an option to have the property delivered vacant, I would explore that. You'd be starting fresh with your own hand-chosen applicants as tenants. Being that this is your first accepted offer, you could maybe use this an an exercise to get familiar with tenant screening as well.
3) If you're not under contract yet, you typically don't begin to schedule inspection... The contract hasn't been finalized yet, meaning yourself & the seller are not fully on the same page. But once you do go UCON, (assuming you have a standard 14 day inspection clause in the contract), you can keep extend the inspection period to account for any time that they caused in the delay. Just instruct your attorney to make it explicitly clear in the contract that you demand a thorough inspection to your own sole discretion, and will not proceed to close until the quality of the inspection and results of the inspection meet your satisfaction.