All Forum Posts by: Chris Kittle

@Chris Kittle

Have you thought about your exit strategy? Exit strategy to me is just as important as the purchase.  For example, can  you make one of the units short term rental thereby increasing the noi and thereby the value? Condo the units out? Or maybe just buy and hold. Will you be improving the units over time? If so then you should have a serious conversation with your cpa to figure out the tax benefits of pursuing one strategy over another? 

An earlier post mentioned "vacancy." That is a "vacancy and credit" imputed expense even if you don't have any. Typical is 5% to 10%, depending on market.  Imputed expenses are important because they will be included as Operating Expenses when a lender appraiser does its appraisal, and also when the lender calculates its Debt Service Coverage Ratio.

Regarding pest control, it's not just monthly roach spraying. You might also have rodent control and termite protection.

For due diligence, make sure you get a two-year payment history for all tenants. Your contract also wants to require an Estoppel Letter from all tenants. That is usually executed a few days before closing. Your contract should allow you to cancel the contract without penalty and full earnest money refund if you can't get all estoppel letters or if problems are revealed in them. Estoppel letters are signed by each tenant and counter-signed by the owner as true and correct. They say the attached lease copy is true and correct and there have been no written or verbal changes from the contract.  The letter confirms the amount of security deposit and the "paid through" date for rents. It also affirmatively states the tenant has not prepaid any rent except the current month, including any type of "last month's rent in advance." It states there are no unresolved issues between landlord and tenant regarding repairs, Fair Housing issues, or anything else.  If  you don't get estoppel letters, you could be in for some nasty surprises.

How are the heating units displaced in the property? Is it one giant water heater and heater or does each unit have their own heater/water heater?

What is the condition of the roof, siding, plumbing, electrical, etc?

Do all tenants pay on time? Have owner provide proof of payment (likely no one will give this to you until you are under contract)

@Chris Kittle make sure you understand the Class of the property, so you can use appropriate vacancy + tenant nonperformance percentages.

We recommend:

Class A 5%

Class B 10%

Class C 20%

Of course, we base this on our Metro Detroit market, so you may want to validate for the market for this property.

@Michael Whitman
DM me and I will send you our du diligence doc

Gino

Hi @Chris Kittle,

Your list covers the essentials! Besides what you've mentioned, here are a few additional common expenses to consider:

• Landscaping (especially if there’s grass or common outdoor areas)
• Pest control (sometimes needed for multi-family properties)
• Legal/accounting fees (for lease updates, tax filing, etc.)
• Vacancy reserves (for covering costs during turnover)

I can assist in helping you find funding, LMK!