You should be raising rents on every tenant every year. Carefully review your management reports, specifically the rent roll, to determine the rent variance, which is the difference between your standard rental rate per unit and the actual rent being paid by a customer. Don’t let customers get a bargain rate any longer. Try to increase those tenants to the standard rent. Do this at least a year prior to selling. If you do it right before you go to market, buyers will not give you the dollars you deserve since the new income is not part of your trailing 12.
It’s also important to reduce your delinquencies. Your manager needs to be diligent about making collection calls. Try to maintain the delinquency rate below 5 percent, move on the lien process right away, and don’t accept partial payments. In a typical sale, the seller will not receive any credit for delinquent rent that is past due more than 31 days. Remember a buyer would rather have an empty unit ready to rent than one with a delinquent tenant who may never pay.
When an offer is presented, a due-diligence document list will be part of the sales agreement. As a seller, you want to have those documents ready and waiting to be delivered to the buyer so the transaction can occur in the shortest possible time. Here are the documents you should have prepared at the time of sale:
- Any surveys, drawings, plans/specifications, engineering and/or architectural studies, grading plans, topographical maps, or similar data
- List of all licenses, permits, certificates of occupancy
- All environmental reports, tests and/or studies
- Any standard form leases, subleases or other agreements affecting the property
- Tax returns for the most recent three years
- List of personal property owned or leased by seller used in connection with the property
- Onsite computer monthly occupancy summary reports for the past 12 months
- Current rent roll listing tenants, rates and deposits
- A list of accounts more than 30 days past due with aging history on each
- Unit-mix report listing occupancy and current rates
- Operating account monthly bank statements for past 12 months
- Monthly P&L statements for past two years
- Current insurance policies and claim histories
- Utility bills for previous 12 months
- All contracts and agreements related to the property
- A copy of the title search from the last transfer of the property
Another chore is to clean out and organize any company units and eliminate any personal units if you can. Remove any personal items from the office so what the buyer sees is what he gets at settlement. Typically, items used in the daily operation of the business are included in the sale.