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Prepare Your Property

5 STEPS to Prepare Multi-Family Property For Sale

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SELLING YOUR MULTIFAMILY PROPERTY IS ONE OF THOSE THINGS THAT SEEMS SIMPLE, AND IN THEORY IS EASY, BUT INVARIABLY HAS UNEXPECTED COMPLICATIONS.  THAT'S BECAUSE OF ONE MAIN THING: DEAL-KILLING SURPRISES IN THE ESCROW PROCESS. WE WROTE THIS ARTICLE TO OUTLINE THE 5 MOST CRUCIAL STEPS TO PREPARE YOUR MULTIFAMILY PROPERTY FOR SALE WHILE SIMULTANEOUSLY LIMITING SURPRISES IN ESCROW.

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It's frustrating when unreliable buyers don’t perform on their purchase agreement terms, especially with unreasonable price reduction requests and supposed financing complications. Nothing is a done deal until contingencies are removed, and getting over the finish line tends to be an uphill climb with most buyers. Safeguarding against potential obstacles in escrow requires diligent preparation and strategic market positioning of your listing. We walk you through the five steps we recommend to all of our clients before selling apartments:

 

Improve Curb Appeal

I elaborate about this extensively in another post; click here to check out more ideas on how to simply, easily, and inexpensively give your property an eye-catching face-lift (and possibly force appreciation!). Most properties are drive by only at first so this is important.

There are numerous ways to do this:

 

Multifamily Curb Appeal Ideas;

  • Paint

  • Landscaping

  • Fencing

  • Slurry Seal and Striping

  • Signage

  • BONUS: Update the laundry room!

 

I’d caution, however, that increasing curb appeal should be evaluated on a case-by-case basis. In this historically high priced residential and multifamily sellers’ market, buyers are paying record prices in AS-IS condition. In many cases, the amount you invest into curb appeal may not necessarily force commensurate value, since buyers tend to be indifferent about cosmetic upgrades. Nevertheless, it would be wise to consider all options prior to marketing the property.

 

Organize your “Books and Records”

Sellers are responsible for disclosing pertinent due diligence items to buyers. For commercial and multifamily transactions, due diligence mostly refers to your accounting and other records. The rule of thumb is to provide full disclosure about anything affecting the value of the property:

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  • Profit and loss statements (2-3 years)

  • Rent roll

  • Leases

  • Recent upgrades and improvements (2 years)

  • Environmental reports (if available)

  • 3 months of utility bills

  • Estoppel Certificates (if applicable)

  • List of vendors

  • Any material issues with respect to tenancy

  • Pictures of interior and exterior

  • Any as-built drawings or plans

 

Once this is all compiled into an organized format, the information should be shared with all prospective buyers before a purchase contract is signed, so all problems and objections can be addressed upfront. This proactive approach creates a smooth transaction for everyone and limits the possibility of any surprises in escrow, such as requests for reduction in price.

 

Take Care of (Inexpensive) Deferred Maintenance

First, multifamily sellers need to prioritize repairs starting with any potential safety issues. Then, if there are any other significant capital improvements that will scare buyers away, it is recommended to tackle these issues as well before marketing the property. Tend to the following issues before listing your property for sale:

 

  • Roof leaks

  • Leaking pipes

  • Potholes in parking lot

  • Faulty siding

  • Dry rot

  • Peeling paint

  • Wobbly railings

  • Decaying staircases

  • Tripping hazards

  • Insect or vermin infestation

 

Title issues can completely jeopardize the transfer of title, meaning you won’t be able to sell the property in the worst case.

 

  • Have you checked if there are any “clouds” on the title report?

  • If you’ve paid off a loan in the past, was the mortgage lien properly and fully removed (sometimes they forget)?

  • If you have a loan secured against the property, is there a prepay penalty and how much will it be?

  • Are there any judgements on title?

 

All questions regarding clouds on title can be answered and investigated with the help of a title company. If there are clouds on title, the title company will work with you to remove them before selling the property. Generally most title issues can be resolved relatively easily, but it's prudent to get ahead of the game to have a marketable, clean title that ensures your property is deliverable and financeable.

 

Investor Tip: you can technically ask your title company to remove anything from a title report, it is a whether they are willing to do it or not.

 

Plan Your Exit Strategy

Defining your exit strategy is paramount. What will you do with the proceeds of the sale? There are innumerable strategies to consider, so multifamily sellers need to answer these 4 questions:

 

  • What are my goals and priorities in life?

  • What are my financial and investment goals?

  • How can I structure my investments to provide the freedom to achieve those goals?

  • How can I optimize my real estate investment holdings to benefit me and my family now and for subsequent generations?

 

Answers to these questions usually lead to the  most common exit strategies:

 

“Cash out” - pocket all the proceeds from sale

Seller financing - structure an installment sale in which buyers can pay off the purchase with interest over time

 

Read About 1031 Exchanges

Exchange into out-of-area apartments - if you want higher income, and are comfortable with investing out-of-area or out-of-state multifamily properties, there are some alternative real estate markets where you can achieve superior cashflow with long term appreciation potential, considering Arizona  apartment prices may be at or nearing the top of the market

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Exchange into single-family portfolio - this is an effective way to “trade down” to a highly diversified income stream; the purchase of multiple single-family homes or condos offers investors the flexibility to gradually liquidate holdings over time, while maintaining all the tax advantages of owning single-family investments

In summary, every property owner has different financial goals. For example, depending on your tax basis, it may be advantageous to consider cashing out by taking a lump sum from the sale proceeds.

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