How do you double check finances given?

4 Replies

Hi everyone,

New to everything, trying to secure my first deal, and after looking at the financials the property looks like a good cash-flow. 

The property is a newly renovated 3 story, 6-unit building and the numbers they have given me are

Annual revenue: 55,300 (including [potential] income from laundry [1,600])

Annual expenses: 15,300 

I know the 50% rule is just a general rule of thumb, but this seems unrealistic to me. Am I just being pessimistic and trying to find a reason not to do my first deal? or should I be somehow making sure these numbers are valid. I assume it's against the law to give out untrue numbers, but just wanted some feedback. 

Thanks in advance! 

Most properties are advertised on pro forma, which is typically "a good guess that commonly contains much ******** to make it easier to sell".  You should trust them as far as a quick introductory glance at the property, then not much else.  

You verify numbers by tax returns, tenant ledgers, etc.  You should also be, or become, familiar with typical operating expenses for properties in your area.  This will help you quickly identify numbers that do not make sense (which can be opportunities to add value).  

They need to give you a break down of those expenses for the last couple years, and you go can go from there.

@nathan visser - NP

Just a quick tip, but when you identify the type of property you are targeting (say small multi family in some metro) start requesting investment packs on all the listings out there.  Save these.  

Comes in super handy when you are trying to estimate expenses to have 20 examples you can jump through that are similar properties.