Here are 8 Factors to Consider with Rental Concessions on Properties for Sale.

I have seen several deals come across my desk that have concessions. This has been in the multifamily niche. Some of the concessions have been quite disturbing to see. For a luxury multifamily asset many tenants that should be paying near to $2500 or $3000 a month, are only paying close to $500 or less.

That is awful and is causing the asset to bleed.

For underwriting deals with concessions, it can become much more complicated. The problem is you have tenants that are occupying the units but are only paying partial rent and not the full. This compromises cashflow for opex, cap ex, the debt service and also distributions for LPs and sponsors.   

Here are my thoughts regarding certain factors a potential buyer of this needs to look out for.  

Firstly, it is important to understand why they have been given the concession in the first place and when can it end?

Secondly, does this specific tenant based off of their circumstances have the best possibility of paying back any outstanding rent at the agreed upon time?

Thirdly, if they don't have the ability to pay back the full rent, how long will it take for you as the new landlord to evict them?

Fourthly, how much will eviction proceedings cost?

Fifthly, you need to prepare for a cap ex budget. Just in case once they are evicted, they are disgruntled, they may do major damage to the unit.

Number sixth, how long will it take you to potentially repair the unit?

Number seventh, how long will it take you to market the unit to backfill?

Last but not less is number eighth, how much will marketing the unit cost to locate a new better quality tenant to backfill it?