So I currently have a 33 lot park under contract. Problem is, the owner has filed the income on his personal tax return and does not want to share that information (for personal reasons).
He has shared the rent roll, 2021 P&L Statement, etc. but it is difficult to determine its accuracy without assurance of real income it has produced. It has 11 TOH ($250 lot rent), 14 POH (could do a lease to own structure for new ownership). NOI of about 60k (according to his P&L).
How do you recommend proceeding forward with this?
If he deposits the rent in a bank account ask him to provide you with bank statements. If it’s a personal bank account have him cross out his personal info with a sharpie.
Some people pocket cash rents. The cash stays off the books and they avoid paying taxes on the income. However, it makes the deal harder to get done.
It also makes me nervous. If someone is willing to defraud the US government then what are they willing to do to me?
I bought a park about 10 years ago and the seller flat out told me that they just spend the Cash Payments.
Luckily, her agent told her that she should deposit everything for at least 3 months before he listed it.
I did an audit of the Rent Collections and 3 months of bank statements. The income was accurate.
SEVERAL years after we closed, it turned out that she had tapped into the park’s water system and sewer system for her private residence. She subdivided part of the property. Turned out she was stealing water from me and using my septic system. I found out because the water line feeding her house froze and my water bill went from $2500/month to $6500/month. We couldn’t find the leak. We eventually found it on her property. She played dumb, but her maintenance man told me that she totally knew and told him not to tell me. I ended up billing her about $10K for all the water usage. She paid.
Highly unlikley the owners redacted income tax return will be of much use. Best option is as SDGuy did requiring 3 or more months income deposits to match with provided rent records.
I would never rely on tax returnes to properly reflect any owners true income or expences.
Some people avoid sharing tax returns and pocket cash rents to evade taxes. In a past park purchase, the seller stole water from me, but I caught her and billed her for the usage. It’s concerning to deal with dishonesty.
If cannot provide bank statement or otherwise…consider a 40% discount on the parks price or assume full risk of books being cooked. Do not overpay. Once the transaction is completed the seller doesn’t know who you are.
IF the numbers don’t add up, kill the deal and move on. 1 + 1 = 2.