Is it customary to request financials before the offer on multis?

Question

If I'm analyzing deals on multi's, should I expect to get the trailing-12 and rent rolls before I make an offer, or do I review those during the due-diligence period?

Thanks,

James

Chris Tracy · Answer

@James Kojo- This is one of the biggest challenges you will encounter in the business of buying apartments- getting good financials and the details you need to move forward.  If you are working with a broker or a seller and you feel like you are pulling teeth... a good script to use is that you need current financials upfront, so you can make an offer that you can stand behind.  That will improve your credibility too with whoever you're working with and show them that you know what you're talking about. Unfortunately it's often a power struggle or you're dealing with a mom & pop owner who are not the most organized individuals.... but that can be an opportunity for you!

Brian Adams · Answer

@James Kojo for large deals it is common for the seller to disclose financial information before LOI.

Sometimes you will get a seller who refuses.

If they refuse, my suggestion is you pass on the deal.

Ray Harrell · Answer

If someone is open enough to share them with you, then by all means! A seller who has nothing to hide will likely share. Someone who is selling a dog will probably want to conceal as much as possible. When I bought the seller gave sporadic information even after the offer. I soon found out why. His records were inaccurate and he hadn't been collecting rent, and the building was stealing electricity.

If/when I decide to sell, I'm going to provide rent roll and rents collected, utility bills, repair receipts, etc. I think people who take care of business will provide full disclosure, because for them full disclosure is a selling point.

Matt Roach · Answer

@James Kojo

I'm a multifamily broker, so I'll give some insight. It depends if this specific property is on market or off. If it is off-market, I come across owners that don't want to give out financials or a rent roll, but groups will still write on properties but be conservative on their underwriting. We've had LOI's accepted without ever seeing anything beforehand. However, during the DD, everything will come out.

If a property is on-market, then yes. I would never recommend pursuing a property without seeing either a Rent Roll or P/L Statement. On small properties 10 units and under - all you really need is a rent roll, as expenses can throw off a CAP very easily.

James E. · Answer

@James Kojo bigger deals yes (although you usually will need to sign an NDA beforehand). There will typically be a full marketing package with financial actuals and pro-forma that brokers will send you on request.

For smaller deals you're typically working with less sophisticated sellers and may get a rent roll, but I don't usually expect a full P&L report (nor do I trust the ones I do get) before I get into due diligence. Typically I would request tax returns for T3 as well as T12 seller certified financials once I'm under contract. You can usually ballpark a starting point for your offer by assuming 50% expenses as long as you have a rent roll, and then re-negotiate as you move through your negotiations and discover more about the property's physical condition and financial performance.

Michael Le · Answer

Definitely before. How else will you know what to offer? Your DD period will allow you to verify some of that information, like cross checking the leases that you will now have access to with the rent roll provided to you prior to LOI submission.

Is it customary to request financials before the offer on multis?

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