How To Verify Operating Expenses/Gross Income
I asking for some info from the experienced mutilplex owners/investors. I have a situation where I have a seller who will not give me copies of lease agreements for tenants and his tax returns for the property. His operating expenses he states are 30%, which is I think is BS since he has only owned for 2 years and 45% +/- 2% is generally the rule 100% of time. WHen you check out the figures on a property, how do you nail down the exact operating expenses and gross income to you can verify if the deal works or not???
Most EM contracts spell out that you get copies of leases or at least look them over during inspection period. Some even request tenants to sign estoppal letters spelling out their terms etc on the lease. This is not practeced in residental that much however. What you want to see in bank statements. Seller can not fake these. I would not care about his tax returns. Most of the fixed expenses you can verify thru the vendors. Water, sewer, elec, trash, taxes, ins, employee saleries and taxes, and several others. Repairs and maint are really the only unknowns. If seller will not comply with your demands threaten to kill the deal unless it is really super then just try to input your own quesstimates and see how the numbers work. No two people manage property the same and how you do it may be cheaper or more than him. Hope my 6 am rambling helps some. I have been involved in almost the same situtation and bought the property anyway. Actually the seller kept horrible records and fixed nothing on the property
Good luck with it. Let us know how it works out
Ted Jr
180degrees,
If the seller, is indeed, interested in selling his REI.... THEY HAVE TO provide the the accompanying documentation or...
You should MoveOn!!!
That is the ONLY way for you to get your Financing"DUCKS" in a ROW!
....as always,
GoodInvesting, Rocky
Once again I would like thank all the responses to my questions. I appreciate all of the sharing of your knowledge and ****Must Reach Senior Investor status before posting URL's***uch obliged!
If you like the property, make a written offer based on what the seller says. Of course make it subject to your approval of an inspection and your approval of his records and all lease agreements to be presented to you within X days.
When you do your inspection, if there are tenants available you may have an opportunity to ask them questions - but not in front of the owner.
180 I am an old time appraiser that has done alot of multis
the owners give us this info freely and easily
as well to any buyer or prespective buyer.
if someone does not want to give this info
run away from the guy as fast as u can.
it is such commom practice to do this that anyone not giving these basic records is just not to be trusted in my opinion
SKI
Thanks for all the comments! I told the guy to F-off, I agree with everyone..this deal was shady!
Yep, if you cant ge that info, move on.
Any owner should have cash flow statements, or be able to direct you to a proerpty manager that does.