What to do before a cash-out refinancing or selling your multifamily property

July 12, 2023 | Sellers

Our expert guide for how to best prepare six to 12 months in advance

If you own a multifamily property and you’re ready to sell or go through a cash-out refinancing, you will need to make sure you are financially prepared and your property is in good condition. 

Follow the checklist below to prepare your asset financials and property condition to ensure you get the highest return on investment: 

Financial Preparedness

Before making major financial decisions, ensure your balance sheet, budget and assets are in order. 

  • Get two valuations of your property from two different multifamily brokers.
  • Calculate your equity based on the estimated property value and your current debt.
  • Calculate your return on equity to know what return you are currently generating and what return you need to replace.
  • Ask your CPA to analyze your capital gains taxes and depreciation recapture.
  • Analyze tax minimization strategies—1031 exchange, deferred sales trust, seller financing, etc.
  • Push all rents to market for new residents.
  • Push all rents to market on renewals, including long-term residences.
  • Fill all vacant and down units.
  • Ask your mortgage broker for lender requirements and terms for new buyers; ie 90% economic occupancy for 90 days for Fannie and Freddie.
  • Get your financials in order—remove all owner expenses out of your P&L (profit and loss statements or income and expense statements).
  • Move all capital improvements out of repairs and maintenance to below net operating income line and remove all mortgage expenses.
  • List out all capital improvements over the last 36 months so the buyer will know what items you have already replaced.
  • Make sure your leases give the landlord the right to bill back tenants for utilities and start to charge for utilities and services.
  • Ask your broker to review your rent roll, T-12 (trailing monthly income and expense statements for 12 months), and T-24 (trailing monthly income and expense statements for 24 months) to find issues that a buyer or lender will find and you can fix.
  • Calculate your buyer’s DSCR (debt service coverage ratio)—this will likely be their loan proceeds constraining factor, including new insurance costs and re-assessed real estate taxes.
  • Research and know the age of the roof and permits for roofing.
  • Research and understand the permits at your property.
  • Conduct title and permit and lien search ahead of time to find anything before the buyer or lender finds it.
  • Talk to your lender and a multifamily mortgage broker about how much they will lend to the new buyer for your property.
  • Update rent rolls and T-12 monthly to provide to your broker for them to review and give you their feedback on it starting 6-12 months before selling.
  • Shop and get updated quotes for insurance and all services to cut costs and operating expenses as much as possible.
  • Add pet rent to all new and renewal leases.
  • Reduce your application costs for new residents to get more traffic for new residents to rent up your units.
  • Offer deposit insurance or loans for new residents to reduce move-in costs to get them in your units.
  • Get five-star reviews on Google Reviews for your property and property management company.
  • Change the name of your property if there is a past to disconnect from.

Physical Preparedness

When you intend to sell your multifamily property, you want to make sure that the property is in top condition. Making sure that all maintenance issues on the property are fixed and resolved is important before selling, especially because the value of your property can be priced higher if there are fewer repairs to be done. 

  • Seal and stripe, fix potholes and car stops on parking lots.
  • Paint the building.
  • Clean the roofs.
  • Landscaping—add mulch, plant shrubs, trim trees and bushes.
  • Fix fencing.
  • Walk the property’s exterior with your broker and find and fix all issues—your broker will see things with a fresh “buyer” view so you can fix these items.
  • Walk the interior of all units with your broker and find and fix all issues—your broker will see things with a fresh “buyer” view so you can fix these items.
  • Fix your property monument sign and add flowers around the sign.
  • Walk inside and inspect all units to find all interior issues.
  • Make a list of the best units to show for buyer tours and appraisals and lender tours.
  • Talk to tenants with suitable showing units about giving them gift cards for showing, so they will be helpful during buyer tours (Do Not discount rents).
  • Fix drywall and paint inside units.
  • Fix water leaks and mildew issues.
  • Fix all deferred maintenance issues found.
  • Know and make a list of all types of electrical panels in the property: Siemens, Square D, Eaton, etc, and make special note of any panels that may be questioned by insurance companies like Federal Pacific Electric, Zinsco, Sylvania, Charger, etc.
  • Know if the type of electrical wiring in the property is copper or aluminum.
  • Know and make a list of the types of water supply lines in the property: Copper, CPVC, PVC, PEX, Polybutylene, etc.  
  • Know and make a list of the types of sewer lines in the property: CPVC, PVC, Cast Iron, etc.  
  • Talk to your manager and maintenance team about your sales plans and share how you will help them after the sale so they are helpful during buyer tours and inspections. A few things that you can offer are bonuses after the property sells, a month’s pay to find a new job, help them keep their jobs or find new ones.
  • If any on-site staff is getting discounted rents, change this to full market rents and pay them a salary.
  • Fix up and rent all down or storage or office units as much as possible.
  • Pest control treatment for all units.
  • Complete termite inspections to find any damage or issues and get them fixed and bonded.
  • Complete four-point and wind mitigation inspections and fix issues as needed.
  • Fully upgrade one or two units to prove out what are the highest possible rents that the buyer would achieve after a full renovation of all units.
  • Add a dog park, if possible.
  • Add a BBQ area to the outside with string lighting and outdoor chairs, if possible.
  • Go through each unit and clean out the AC drain lines and clean the AC unit and replace the air filter.
  • Check the AC for leaking drain lines and make sure the float switch is working.
  • Check all toilet flappers for draining or continuous running water.
  • Check all shower heads and faucets for leaking and under each sink.

By following these steps and executing thorough research, you can make informed decisions about whether you want to cash out refinance or sell your multifamily property, ensuring you maximize your returns and achieve your investment goals.

Learn more:
Download this checklist and other resources here

Ready to sell your multifamily property?

At 100Units.com, we’ll utilize our experience and in-depth expertise to help you sell your Florida multifamily property for top dollar. From determining the listing price to marketing your property to conducting the closing, we’ll facilitate a smooth transaction for you every step of the way.

Learn more at 100Units.com or give us a call at 866.GO.UNITS.

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