Never, ever make any offers based on pro-forma info! At a minimum I require a T-12 (trailing 12 months) before I consider making any offers, and would prefer the last 2 years income and expenses. The broker (if one is involved) will probably tell you many offers are coming in and you better make an offer soon, you’ll get the actual income and expenses after the offer is accepted! Don’t fall for this BS! Either the broker isn’t able to get the actual income and expenses from the seller because the seller isn’t really trying to sell, or the broker is attempting to bid up the property and get the buyers to make contingent free offers so when the actual income and expenses are made known, the buyer can’t back out!
When do you inspect a property you’re considering buying? I always like to go when the weather is at it’s absolute worst! Every property looks great when it’s 75 and sunny! It’s when it’s raining sideways with 30 mph winds I like to go see how the property is holding up! Are there ponds in parking lot? Tenants complaining about the roof leaking, again? Is the maintenance staff anywhere to be found?
Another good time to visit a property is Friday or Saturday night around midnight. Is there any drug or gang activity taking place? There may be a bigger problem at the property that needs attention! I always recommend getting a police report for the property to see how often and what activity is taking place there.
I have known thousands of real estate investors in my 25+ year career and I’ll let you in on a secret! NOBODY GETS RICH QUICK! There’s a lot of hard work and education that goes into being a successful real estate investor and it doesn’t happen overnight! You need to invest in your knowledge of the market, the property, the real estate cycle, financing, and on and on! If someone says that you can get other people’s money to invest and you don’t know a thing about investing in real estate, wake up! Would you invest in somebody who doesn’t know anything about what they’re doing? You have to pay your dues and you do that by being smarter and working harder than everyone else!
What do you know about your commercial real estate broker? What about their company? Would you be surprised to find out they may have been disciplined by their state regulatory board? Or their firm may have been convicted of multiple disciplinary actions by the state regulatory agency? Find out by going to the state regulatory agency and look them up before you find out the hard way!
You’re considering buying a “C” grade multi-family property and you think you can raise the rents to improve the cash flow. Can you? Did you compare this subject property to the competition? What can you do to differentiate this property from the rest? If this is a “C” grade property, have you checked out the “A” grade properties? What do they offer that you can’t? How much more do they charge compared to this property? What is their vacancy compared to this property?
Due to overwhelming concerns about the impact Covid will have on commercial real estate, lenders are tightening up lending criteria. 75%LTV and 1.25 DSC are the minimums most are requiring. Fannie and Freddie loans have been requiring anywhere from 6-18 months of debt service to be escrowed along with 6-18 months of repairs reserves also to be escrowed. Refinancings with Fannie and Freddie have required borrowers to show their last 2 years of income and expenses TO THE PENNY!
After 25 years of experience and over half a billion dollars of multi-family properties sold that the biggest mistake real estate investors make is they fail to plan their exit strategy before buying, and therefore, over pay for a property. They may start out with the intention of improving the cash on cash return by improving the units and raising the rents, but the biggest mistake they make is planning what the value of the property will be in 3-5 years and what will be necessary to achieve it. I use a proven system that analyzes each line item of income and expenses and then adjust each accordingly, annually based on projections, to determine what the property will be worth, as well as what the potential tax exposure will be if a sale is contemplated. My system determines the Internal Rates of Return, both before and after tax, to give you the road map necessary to achieve your objectives.
Planning your exit strategy is crucially important in the current Covid world because a mistake in planning may be devastating financially!