Multifamily investors – are you leaving money on the table because you are unwilling to do the uncomfortable work it takes to prepare your business for sale. Consider using a technique called reverse engineering to analyze your business from the buyer’s perspective. By taking the business apart you can enhance your presentation.
There are three elements to be considered in this investigative process:
The Property –
Nothing beats walking the property with the eyes of a buyer. Take your realtor with you and be willing to listen as they ask questions. Don’t become defensive as they inquire about condition and upkeep. Make lists of things that should have been done to maintain the property. Include lists of capital expenditures you have made that would be important to the new owner.
The Tenants and the Management
Interview your property management company to better understand how the property is being managed. Remember that the buyer is buying not only the property but the management of the property. Are there systems that you need to tighten up before putting the property on the market. Describe the management structure that you have in place… (if you do). How much do they do to manage the property? (just collect rent, secure the maintenance, etc.)
When someone is buying an investment property, they are not just buying the income it produces but the building, the tenants and the location in the community.
Can you produce a clear profit and loss statement for the last twelve months? Utilize your realtor to ask difficult questions that will help flesh out inconsistencies. Are you making extra income such as laundry money, etc. that you are not including in the profit and loss? What about seller benefits that you are including as business expenses? Consider doing the same review of your taxes. Is this property rolled into your other business ventures and if so, do you have a way to release your taxes for review to the new buyer without divulging your other business ventures?
Review all your leases. Are they current and adhering to your policies? If they are not, make plans to revise them. Access them to determine if you have “special rates for special people.” Nothing looks more disconcerting than too many of these fishy special deals. Buyers not only want to see leases that still have time on them but also that there is a consistent pattern to the apartments. Leases that are soon to expire and have inconsistences in the pricing to square footage raise flags.
Each of these three elements go together to present a favorable investment. Do this ahead of the time when you are ready to sell, and it will make your business a favorable deal.