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Protect Yourself from Seller Motivated Moves | International Residential Real Estate Investors Association
Monday September 25th 2017

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Protect Yourself from Seller Motivated Moves

Sellers are motivated to try to stack the deck to assure a closing.  Unfortunately, investors are not always served by a successful close.  What value is closing on an apartment complex if some seller maneuver causes the investor to reach assumptions that eventually crash the business plan?  Obviously, none good at all is served by this result.

As apartment purchasers and investors, accepting that sellers’ interest is in direct opposition to the buyers’ interest.  The only preventive measure available is a sound purchase contract with the necessary representations and warranties required combined with a thorough and self serving due diligence process coupled with an equally thorough closing process.

This implies that as an investor in a multifamily project several items require close monitoring:

  • the rent roll,
  • leases,
  • resident applications,
  • resident payment history,
  • complaints,
  • history of police call or other issues ,
  • threatened or filed suits by residents against the property,
  • condition of each an every unit for all systems and items including:
    • AC
    • Heating
    • Appliances
    • Age of roofs (verify and ask for warranties if there are any)
    • Maintenance records
    • Capital improvement records

As an investor, you must not accept the sellers “word”.  Without tangible evidence, the investor should assume the worst until proven otherwise.

In the course of taking these steps, the process should include legal documents that maintain responsibility of the seller without inadvertently creating “safe harbors” for issues that may crop up.

For example, the seller should be required to reduce the price for lost occupancy.  At the same time, the contract should require that regardless of this event if post closing should firm evidence develop that an attempt to pad the rent roll occurred, the seller remains responsible liable for damages post closing and will be liable for up to 12 months into the future.  Or in another example I suffered, if the seller attempts to artificially improve the appraisal, legal remedies remain in place for the investor.

The methods and means available to a seller to artificially improve their position are really limited by imagination.  However, the focused investor with a comprehensive effective due diligence process will largely eliminate the temptation and possibility of these activities.

Blake Ratcliff

“The IRREIA - Making residential real estate investing more fun and rewarding
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