Tired Landlord... Acquiring the Rental Portfolio

4 Replies

Hi All, 

I am looking for some advice on what due diligence I need to perform in the following situation.  

I met an older investor that has 47 properties that he's acquired over his career. He's looking to liquidate and move to the beach with his wife, but has said he is open to terms as far as seller financing. 

There are 31 SFH , duplex, and mobile homes, and the rest are vacant lots. We signed an agreement to purchase for a price of 950k. Income from his last year showed approx $15,000 per month after taxes and expenses (he owns these free and clear).

What type of information would you request for a situation like this. I haven't dealt much with rentals, but my long term goal was to acquire cashflowing rental properties

Any advice would be greatly appreciated!

Regards,

Luke

You need to see his IRS tax return on these properties to verify the profit and loss. Need to check with tax assessors office for property taxes, tax rate and payment schedule and if there are any delinquent taxes to be paid. You need to see the insurance policies, are they up to date, can  you renew with thier company on same terms or will the premiums go up when you purchase. Or do you have to get your own from your own company. Check with utility companies to get actual costs, are they up to date and are they on a budget plan. Are there any flood concerns? If so do they have flood insurance and will the premiums go up with a new owner? Also need to have the rent rolls and verified monthly rents, who is paying, to whom do they pay, date of last payments, are there any arrears for rent payments and are there any current litigation's going on at present for nonpayments. Need to have your attorney or title company do title search on all these properties of course for proper title transfers on all properties and lien search to determine if there are any current liens on the property. 

Have you viewed each unit to determine repairs and Cap. EX. for near future? Have you looked into a professional management company for rates and terms? Or do they have one employed, and if so what are thier terms and can you continue with them?

Have you looked into rental rates for the area, are his low, is there room for increases as soon as you take over? 

And most important is what will it cost you at your first day of ownership and are you prepared for this? Will you have to do evictions that day? Who will be collecting the first months rents? Do you have bank accounts set up starting on your first day, rent deposits, security deposits, maintenance budget, utility payments, etc...

My biggest thought about this is that you mentioned that you haven't done much with rentals in the past. You are buying not just a full time job, but a career. Have you fully thought out and asked them what is involved on a day to day basis? Do you work full time now? Can you job shadow him or have him stick around for a few months to mentor you?

You are well on your way with that many rentals, just be cautious and try to cover all the details you can find?

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@Mike Sedlacek Thanks Mike. Great information there and I am putting together my package of what I will need. @Kevin R. Thanks for the words of caution.  I am certainly being very cautious in my approach to taking these all on, but am working with a mentor who is very experienced with these types of deals and am learning a lot about how to profit on something like this...even if it doesn't involve me buying and holding them as rentals.  Thank you both for the input!

@Luke Petrozza Love the ambition.  Not knowing your area, my initial thoughts would be on the quality of the units, given that the deal is valuing the units at less than $30k per unit, and that's pretty much ignoring the value of the vacant lots.  There are quite a few topics on BP about $30k pigs.  If thats all the properties are worth, you maybe looking at low quality tenants, that require more than normal management.

Another thing to consider is the exit strategy for the vacant lots. Are they developable, by which I mean can the area support new construction development (no way if they're near the $30k houses in the rest of the packages).  If not, then all they are is a money drain that will cost you in yearly taxes and maintenance costs (lawncare, etc).