Here’s a great tip on how you can avoid overpaying for an income property.
When you want to buy an income property, the seller wants to make it look like their property produces HIGH income and LOW expenses.
That way, the seller can get you to pay a high price for the property.
That’s because many properties (especially those with 5+ units) are valued based on the net income that they produce.
Net Operating Income (NOI) is simply your rent income minus your property’s operating expenses like property tax, utilities, and repairs.
Here’s what you do: make your offer contingent upon seeing the prospective seller’s “Schedule E”. It’s their property’s financial statement that they submit annually to the IRS.
Because the seller wants to pay as few taxes as possible. Therefore, their Schedule E could show the OPPOSITE of what they told you earlier: LOW income and HIGH expenses.
This is how you gain leverage and negotiating power!
What’s the bottom line?
When you make a purchase offer on the property, make it contingent upon seeing the prospective seller’s “Schedule E”.
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Great article! The schedule E was suggestion to get a better idea of the expenses on a potential buy.
Thanks a bunch Keith! Keep educating at GRE!!!
Great article! What is schedule e in Canada?