STEP 2: INSPECT THE PROPERTY
Before buying any property, you should always have the property professionally inspected. This is especially true with multi-unit properties. You need to be aware of the status of each and every unit in the building before you make an offer on it. This is essential so you will know ahead of time what repairs need to be made before your new tenants start to complain to you.
Make sure that you get your real estate agent to get you into each and every one of the units before you make any offers. Even apartments that are occupied you need to check. Typically, the rules are that you are required to give tenants a 24 hour notice before walking into their unit to look around. In most cases, I have learned that tenants are usually optimistic about welcoming new owners in hopes that you will bring better living conditions to the place they call home.
STEP 3: READ THE LEASES
It is very important to read over each and every lease before making an offer on the property. Some landlords have their units rented on month-to-month leases or even verbal leases. These are things you need to know and you need to understand how these leases work. The terms may surprise you and how they affect the value of the property!
A month-to-month lease is generally a written lease agreement that has no preset termination of lease in the contract. There may or may not be a deposit on the account from the tenant. Without a deposit you have limited means to regain any losses from a non-paying tenant or damages left by the tenant. This lease usually requires a written notice from the tenant 30 days in advance prior to their evacuating the unit so that you can begin to advertise the unit for rent.
A verbal lease in a landlord’s worst nightmare! In this situation, you are allowing a tenant to live in your building without any legal recourse to assure anything. Legally, it will be impossible to prove a court judge what the amount of rent amount agreed to be and when payments are due. You also have no idea when they will vacate the property and they have no reason to prevent further damage to your property because you have no deposit on account.
STEP 4: MAKE AN OFFER
After you have inspected the property inside and out as well as the paperwork behind it, it is now time to make an offer on the property. This is where the conditions on why the owners are selling come into play again. They longer a property sits on the market, the more desperate the owner will become in selling it. It is good information for you to know how long the listing has been on the market as well at what the original listing price was.
For example, if a four unit property has been on the market for over a year and the original listing price was $100,000 and has been reduced twice in the last year, this is a potential deal maker. Let’s assume that the current price on the listing is $66,000. Your real estate agent tells you that several people have looked at the place but no one has made an offer because they felt there was too much renovation work involved.
In most cases it is safe to assume that the building is worth close to the amount of the original asking price ($100,000). A bank will want at least an 80:20 ratio in the amount borrowed to the property. If these circumstances are met, its time to act! A smart investor would offer the owner $50,000 on the property with a guarantee to close in days. Try it! You just bought a gold mine!