What doesn't show up on paper?

Question

Something I picked up working with multifamily and commercial rentals, mostly on the project coordination side: the properties that looked great on paper weren't always the ones that did best.

For those of you owning multifamily/ commercial, what came up early on that you wish you'd known going in?

Any costs you didn't see coming, or problems that only showed up once you owned the building?

Divin Kanyama · Answer

That’s an important lesson, @Daniel Vera. The surprises usually aren’t in the purchase price—they’re in the operations. Deferred maintenance, aging plumbing or electrical systems, insurance and property-tax increases, utility costs, tenant turnover, delinquency, and code or accessibility requirements can quickly change a deal that looked strong on paper. With commercial properties, tenant improvements, leasing commissions, long vacancies, and major HVAC or roof work can be especially expensive. The best protection is thorough physical and financial due diligence, realistic assumptions, and healthy reserves. A property with modest projected returns but dependable systems and stable tenants can outperform a “better” deal that leaves no room for the unexpected.

Henry Clark · Answer

OP what are your examples?

Mine would be property tax increases due to revaluation and increased interest

Costs due to longer period coming to market or hitting projected occupant levels.

Denise Supplee · Answer

The little things can really add up, especially with an older property. A roof, HVAC, plumbing or electrical system may be working when you buy, but that doesn't mean it's going to keep working for years.

I would pay close attention to the age and condition of those major systems and make sure you have good reserves. The purchase price is just the beginning of what it costs to own a property.

Diana Khan · Answer

@Daniel Vera, one thing I’ve seen surprise buyers is when the paperwork does not match what is actually happening at the property.

A building can look fine physically, but then you start digging and find old lease terms, security deposit issues, side agreements with tenants, work that was done without the right permits, or a use that does not quite match the records. Those things may not change the purchase price on a spreadsheet, but they can create a lot of work after closing. I agree with your point about walking the property. I just like to make sure someone is walking through the documents with the same level of attention too.

John Leland · Answer

The impact the neighbors have on the neighborhood.

Daniel Vera · Answer

@Divin Kanyama All valid point that hold a lot of weight! The part about a property with modest returns but dependable systems outperforming a "better" deal is exactly what I've seen. Deferred maintenance was the big one on my end.

When small issues don't get followed up on, they turn into the expensive ones.

Not only physically but how it affects leasing/ vacancies when current and future tenant issues aren't resolved properly.

Daniel Vera · Answer

@Henry Clark Valid points! Tax reassessments after a sale catch a lot of people off guard. Unit turns taking longer than they should also quietly eat into cash flow.

Mine are more on the physical side. A lot of what matters isn't in the listing.

How the street looks at night, the condition of the neighboring properties, where water drains after a heavy rain, whether the parking lot is falling apart, how clean the units actually are.

That's the kind of stuff you only find out by having someone walk it and report back before you commit.

What doesn't show up on paper?

What doesn't show up on paper?

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