Rent Control is moving forward in a number of states, specifically Illinois, Nevada, Massachusetts, Washington, and Colorado. Expansion of existing Rent Control laws is expected in California and New York.
Now that some more properties are coming onto the market now, I’m seeing more with absolutely terrible underwriting! Either these brokers don’t have a clue as to how to underwrite a property, are lazy, incompetent, or all of the above!
Recently I saw a property come on the market with an 80% LTV and 23% expense ratio!
In these Covid times, lenders are being very conservative and underwriting at 75% LTV at best, not 80%!
And 23% expense ratio is beyond laughable! Did the broker not check any of the sold comps in the market? If they would’ve, they would’ve found that there has never been a property that has sold in that market with a 23% expense ratio EVER!
These kind of mistake, if I can call them that, do a disservice to the seller as well as the buyer because all it does is cause the deal to be renegotiated during due diligence because it can’t get financed or appraised at these levels!
If you’re a seller or a buyer, don’t accept this incompetence! You don’t need to waste your time and money!
Never, ever make any offers based on pro-forma info! At a minimum I require a T-12 (trailing 12 months) before I consider making any offers, and would prefer the last 2 years income and expenses. The broker (if one is involved) will probably tell you many offers are coming in and you better make an offer soon, you’ll get the actual income and expenses after the offer is accepted! Don’t fall for this BS! Either the broker isn’t able to get the actual income and expenses from the seller because the seller isn’t really trying to sell, or the broker is attempting to bid up the property and get the buyers to make contingent free offers so when the actual income and expenses are made known, the buyer can’t back out!
When do you inspect a property you’re considering buying? I always like to go when the weather is at it’s absolute worst! Every property looks great when it’s 75 and sunny! It’s when it’s raining sideways with 30 mph winds I like to go see how the property is holding up! Are there ponds in parking lot? Tenants complaining about the roof leaking, again? Is the maintenance staff anywhere to be found?
Another good time to visit a property is Friday or Saturday night around midnight. Is there any drug or gang activity taking place? There may be a bigger problem at the property that needs attention! I always recommend getting a police report for the property to see how often and what activity is taking place there.
I have known thousands of real estate investors in my 25+ year career and I’ll let you in on a secret! NOBODY GETS RICH QUICK! There’s a lot of hard work and education that goes into being a successful real estate investor and it doesn’t happen overnight! You need to invest in your knowledge of the market, the property, the real estate cycle, financing, and on and on! If someone says that you can get other people’s money to invest and you don’t know a thing about investing in real estate, wake up! Would you invest in somebody who doesn’t know anything about what they’re doing? You have to pay your dues and you do that by being smarter and working harder than everyone else!