When you’re making an offer on a property, you’re usually working off of numbers provided by the seller and/or seller’s broker.
Doesn’t this seem a little strange? A party with the complete opposite interest of yours is providing you with ALL of the data that you will base your potential offer to purchase on.
I’m not saying that everybody out there is dishonest or unethical, but it is imperative that you double check every single offering memorandum, setup, or P &L that is being furnished.
Sellers lie. It is what they do. Every deal needs to be underwritten correctly.
Sometimes you get the omitted information. No management fee, no maintenance, no reserve factor.
Then sometimes you get the light expenses, $2,000 per year to do snow removal on a 400 space parking lot because the seller’s brother in law does it. The insurance policy that is 50% under what you were quoted. Etc
Then you get what I call the camouflaged vacancy. This is when a broker adds the potential income form current vacancies but does it in a way that confuses the reader and makes it look like it is actual NOI.
Not all brokers and owners will provide you with incorrect information. In fact, a good broker/seller will actually try to be as honest as possible because they would rather correct any issues before getting a signed contract and going deep into due diligence.
Bottom line, you need to accurately underwrite every deal and really know what your true NOI is before you can make an offer on an asset. You are better off scrutinizing the numbers before you make an offer, than once you are 30 days into due diligence and committed to a transaction.