Rental Property Investor · Addison, IL · Member since 2013 · 37 posts · 6 votes
I have set up a meeting with a seller on his 8 unit apartment building. He is definitely motivated to sell. I have experience in SFH's but none in apartments so I was wondering what kind of documents should i ask to see. My intention is to wholesale this deal to another investor. So what documents or info must my future investor need to come up with his purchase price. Are these the documents or info the same for Multi family properties
Some questions:
- Does he use a PM company or self-manage? If a PM, what's the reputation of the PM?
- What are his annual expenses?
- What's the vacancy like?
- What are the rents? Are the rents solid market rents or below?
- Have other 8 unit buildings sold recently in the area and for how much?
I know there are others, but these are at least the first few that came into my head.
To analyze you are looking at expenses to income, then the property condition and potential mechanical replacement cost.
So..
Leases -if it is on leases (to start the discussion ask for at least 1 example so you know the terms). In the end you will need them all.
Length of Occupancy of tenants so a rent roll with the rents per apartment by year. Vacancy rate.
Expenses- Make a checklist of what you think they could be paying and go through it so you include all possible expenses. Find out the cost of owner paid utilities, maintenence fees, management fees.
Taxes
Insurance cost (this of course may be vastely different from what you will pay)
For mechanicals find out the age and recent repairs.
Also any assessments coming from the city.
There are lots of people with more experience then me on this that may have things I left out.
There is a difference between analyzing the property and determining a purchase price. Yes, you need to look at their profit and loss statements, vacancy rate, rents and leases, condition etc. But it still comes down to how much to offer.
Appraisers look at MF in two basic lights. First they look at the going price per unit. This necessitates finding other MF in similar condition, quality and neighborhoods and then figuring out what was the sales price per unit. This is then applied to the subject property. For example, if you found a 12 unit MF that is similar to the property you are looking at and it sold for $216,000 then the price per unit is $18,000. The 8 unit property would be worth $144,000. This of course is a oversimplification of the process but I think you get the picture.
The second method is to capitalize the net income to determine a market value. This is based on accurate profit and loss statements. Since each market is different, I cannot tell you what your local capitalization rate is. You can check with appraisers, property managers and real estate companies that specialize in MF to find out.