Taking Over a 50-Unit Mom-and-Pop Apartment Complex With Poor Records
Taking Over a 50-Unit Mom-and-Pop Apartment Complex With Poor Records
We currently have a 50-unit apartment complex under contract and I'm looking for advice from anyone who has taken over a property from a very old-school mom-and-pop operator.
The property has been owned by the same owner since 2008. There are currently supposed to be 32 occupied units and 18 vacant units.
We've received 26 of the 32 leases. The leases show the tenant's name, rent amount, security deposit, and usually a phone number. Several of the leases are old and have rolled month-to-month.
The problem is that a lot of the information is handwritten, some of the handwriting is difficult to decipher, phone numbers may be outdated, and we generally don't have email addresses.
They also don't use property management software and can't produce a legitimate rent roll or P&L. Most/all rent is collected in cash.
The seller is terminally ill and wants to sell rather than leave the property for his heirs to deal with. The property is priced below what we believe to be market value for a relatively quick sale.
I really have two concerns I'm trying to solve.
1. How do I verify the income before closing?
The leases tell me what the property should be collecting, but that's not the same as proving what it is collecting.
If the seller tells me these 32 units are generating $XX,XXX per month, what would you require him to produce to substantiate that when the majority of the rent has historically been collected in cash?
Bank statements? Tax returns? Rent receipts? Tenant estoppels? Something else?
I'm especially interested in how others have underwritten a property where the seller's accounting records simply aren't reliable enough to verify actual collections.
2. How do I efficiently collect accurate tenant information after closing?
We already manage other properties and use property management software. I need to get these 32 occupied units into our system with accurate legal names, current phone numbers, email addresses, occupants, etc.
The easy ones don't concern me. If I have a good phone number, I can contact the tenant, send them what I need, and get them set up.
How do you handle the difficult 10–20%?
For example:
- Phone number on an old lease is disconnected.
- I can't decipher the handwritten tenant name.
- No email address exists.
- Nobody responds to calls or letters.
- The person answering the door isn't the person named on the lease.
- We have an occupied unit but the seller can't produce a lease.
- Tenant claims they've lived there for years but we have almost no documentation on them.
Would you send an information packet to every occupied unit immediately after closing? Go door-to-door? Schedule some type of mandatory tenant onboarding/registration process? Require identification? How do you get the stragglers to actually provide the information you need?
My goal would be to quickly establish an accurate tenant database and transition everyone into our normal management/payment system without unnecessarily creating chaos for the existing tenants.
I'm primarily looking for advice from someone who has inherited bad tenant data and bad financial records from a previous owner.
How did you verify the income before buying it, and how did you rebuild the tenant database after you took over? What worked, and what would you do differently?
If you were in my shoes and were to buy this property, what would your first 30/60/90 days look like?
Most importantly, what am I not thinking about?
