| Don't Buy "Lipstick" on a Commercial Property &quo |
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JudithCarmen
First Time Poster
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Joined: 20 Apr 2009
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| Don't Buy "Lipstick" on a Commercial Property &quo |
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It is easy to find Commercial Properties with "Problems" with "Issues" or "Challenges" or "Upside" or "Value Add". Whatever language you use these are deals with "Hair on 'em". The current owner is in a world of hurt and that's why they are selling. Now if you can fix those problems , there might just be an extra dollop of profit to be made.
Problem is this: The Broker takes that Pig of a Property puts a bunch of Lipstick on it and tries to tell you it's a real "Beauty Queen" deserving of a special place in your portfolio.
The "Lipstick" is the Broker's Proforma: Your job is to wipe that Lipstick off and buy that property for what it is actually worth hair and all.
The Challenge is buying the property at a price that acknowledges the current problems. The Offering Documents only give you the Broker's Proforma. This is a projection of the property's operation under the most Ideal of circumstances. This is the Lipstick you don't want to kiss. Usually they project the income IF this property had a new coat of paint, was sitting on a different street and was rented up to market occupancy and at market rates.
• That is not what is happening at the Property
• That is not why this Property is for sale
• And that is why the asking price is not what the Property is worth
Your job as a developer or user of Cochin Property during screening is to figure out what is really going on with the property so you can buy it for what it is actually worth "As Is". You need to know the Net Operating Income (NOI) and to get that you need the Actual Income and Expense figures. Throw the Broker's Proforma out the window and ask them for the following documentation on actual numbers from the property under the Seller's management.
• Profit and Loss statements for Year to Date and last year , sometimes simply known as "Financials”
• Current Rent Roll
• Current list of needed capital improvements
• Why the owner is selling
• What they owe on the property
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Mon Apr 20, 2009 7:47 am |
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Shane Watson
Contributing Member
Cash: $ 6.30
Posts: 31
Joined: 04 May 2009
Location: California
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It is a very nice metaphor, which you have used. But the competitive strategy to take over the fake lipstick would be a little hard. And it would require a good power of observation. Well, at least now we know what to do.
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Tue May 19, 2009 3:19 pm |
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