What info do you ask for when first evaluating a deal?

Question

What info do you ask from a selling broker. I'm mainly interested in the rent roll. Is there something else you ask for? A P&L would be great, but I'm not sure if that is generally considered appropriate to ask for. Thanks!

Todd Dexheimer · Answer

depends on the size of the building, but to underwrite it to formulate an offer you will want the rent roll and last years P&L and current T-12. I always ask for Tax returns for the past 3 years and 3 years of P&L, but often don't see that until You sign the contract. The other thing that is helpful is a list of cap ex improvements in the last 5 years, age of roof, Hvac, plumbing, electric, last interior updates, who's managing it, any city hazards/issues

John Casmon · Answer

Great answers in this thread, specifically from @Todd Dexheimer and @Omar Khan. But as @James Kojo stated, smaller properties don't always have this info or sometimes it's inaccurate. Not just 2-4 units, but 20+ units sometimes have mom and pop owners who just don't have good records. Also, in a hot market, some owners don't want to be bothered gathering every detail on the property for "tire-kickers" so they may not be willing to provide some of the additional info until a contract is accepted.

James Kojo · Answer

@Alex Tobias :

the answers already provided are excellent. To add a bit about smaller buildings (esp. 2-4 units), it's not uncommon to have really poor record keeping. In the extreme case,  it's just the landlord collecting rents by knocking on the door and taking cash based on a verbal agreement. :)

Usually, the bigger the deal, the more sophisticated the operator is, and thus better records.

So if you're doing more smaller deals, you may have to settle for less, but you can try and get creative during due diligence to verify your underwriting assumptions, like knocking on those same doors and getting a signed estoppel. :)

James

Omar Khan · Answer

@Alex Tobias

Depends on the # of units in a building but a basic due diligence process would include:

• Rent roll
• T-12 P&L. In hotter markets, sellers are providing T-3 or T-6 P&Ls but caution has to be exercised as owners can be dressing up their properties. @Quentin West makes a similar point above
• CapEx improvement schedule for the past 3-5 years. Some common items: HVAC, roof, electric, interior updates, plumbing
• Comparable rents vs. Current rents: you can glean this information through online sources as well as old-school searching (walk-ins, calling the buildings)
• Talk to local brokers to get the inside scoop
• Market analysis
• Check to see if building is in a flood plain

You can ask for, but these items are usually provided after signing a contract:

• Leases for lease auditing against bank statements, tax returns and leases (usually not provided before a contract has been signed).Tenant payment historyViolations, delinquenciesLease addendum and/or other agreements
• Tenant payment history
• Violations, delinquencies
• Lease addendum and/or other agreements
• Tax Returns
• Bank Statements
• Utility billsCan RUBS be implemented (some municipalities may not allow it)
• Can RUBS be implemented (some municipalities may not allow it)
• Service contracts
• Reserve funds
• Environmental assessment
• Employee records
• Structural issues including foundation
• Employee history
• Other value-add features that can be added include:Trash valetCar portsStorageDog parks
• Trash valet
• Car ports
• Storage
• Dog parks

• Tenant payment history
• Violations, delinquencies
• Lease addendum and/or other agreements

• Can RUBS be implemented (some municipalities may not allow it)

• Trash valet
• Car ports
• Storage
• Dog parks

To be honest, a similar level of due diligence is required across multifamily and manufactured housing (mobile home parks).

Best of luck!

Nathan Gesner · Answer

How many units? If you are looking at a small multi-family of four units or less:

• Rent Roll
• Review all leases, addendums, or other agreements
• Tenant payment history
• Any violation notices, delinquencies
• List of all maintenance in the past year
• Schedule of capital improvements in the past 3-5 years
• Utility bill review
• P&L for current year plus the last 1-2
• Service contracts (landscaping, cleaning, snow removal, etc.)
• Inventory of all property owned by Seller

There may be more but this is a good start. If you are considering a larger multi-family, there would be additional things to check like employee records, reserve funds, review of bank accounts, environmental assessment, and more.

Alex Tobias · Answer

Thanks everyone. I agree for the most part. I'm currently mainly focusing on mobile home parks, but this has been very helpful.

Account Closed · Answer

@Michael Dang - here is a free resource to check if your property is in a flood zone.  https://msc.fema.gov/portal

I also use Flood Insights but it's a paid subscription.

Ian McDonald · Answer

All good information. Does anyone utilize a checklist when taking calls from prospective sellers in order to maintain consistency and gather only the needed preliminary information?

Todd Dexheimer · Answer

@John Casmon and @James Kojo  that's absolutely correct. When you're buying smaller units, often times you just have to figure out what the market is at and what you should be paying in expenses due to poor recordkeeping. Even as you get up into the 100+ units  you may find out that there are some with poor recordkeeping as well. Especially as you get into the higher units you should be getting a discount if there is sloppy recordkeeping. My suggestion is always be conservative with your numbers if you are using pro forma. I'm sure by your statements (and knowing both of you) you are already doing that.

Quentin West · Answer

I agree with everything that's been mentioned. I would only add that I like to see the T-24 as opposed to T-12 because some owners like to fill the units with any warm body leading up to a sale in order to make the property more attractive...

What info do you ask for when first evaluating a deal?

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