A case study in losing $6,800 on three fourplexes that never closed, all dying at the same step
A loss pattern worth studying because it repeats. Picture a buyer who spends fourteen months with three fourplexes under contract and closes none. Costs: $1,900 on the first including a sewer scope, $2,400 on the second, $2,500 on the third, which included a lender appraisal ordered early in the name of efficiency. Every one of them dies at lease review, and it usually takes until the third for the pattern to show. The buyer's maximum price came from market rent estimates. Listing sites, two calls to managers, a number built per unit type and defended. Actual signed leases come in 9, 12 and 14 percent below those numbers in the three buildings. The sellers were not lying about anything. Sitting tenants had below market rents, some going back years, and two of the buildings had leases with fixed terms running another eight to fourteen months. So the buyer was purchasing whatever the leases said until they expired rather than market rent, and the price already agreed to only worked on market rent. Each time this surfaces after inspection money is spent, because the sequence was inspection first and document review second. That order is pure habit. The inspection is the thing everyone talks about, so people do the thing everyone talks about. What to do differently: leases, the rent roll and twelve months of bank deposits inside the first five days, with a document review contingency that lets the buyer leave before spending anything on the building itself. Underwrite the in place rents, and treat market rent as upside you do not pay for. Done that way on deal one, this buyer keeps the $6,800 and probably has a building. The three sellers in a story like this are rarely unreasonable. The buyer is pricing a future nobody has verified anyone agreed to.
