Juicing the books....

[eldorado]

I feel compelled (Rant) about how a seller can ruin their own deal.
I'm in the process of buying a 24 Unit apartment building.
Old appraisal was 404K (2yrs old)
By all my dudilligence (and let me tell you-I've researched Every expense)
This building should show about 37.5K in expenses
It has 82.8K in income
It's a freakin cash cow!!!
OK do the math
$82,800.00
- $37,500.00
Divide by .10 CAP rate=$453,000.00
Appraised price

I'm buying it for 350K and trying to finance 360k with a little cash out at closing for necessary repairs
I'm putting down $36,500.00
According to this,I should be buying it with 88K equity on the front end. Before my down payment

Remember that age,condition, and curb appeal has little to do with the appraisal price of a commercial property-it's all in the books.

Which IS the ONE thing the seller realized. She let the place's appearence go down the toliet.
She did hardly NO cosmetic repairs for years.

To explain a little about her mentality, She has a $250.00 deductable on her commercial insurance and won't put a claim in when she needs to. This is unheard of..I'm surprised her insurance agent even sells such a policy.

She's too cheap to install mailboxes-the entire complex shares one mailbox. Thats illeagle according to the postmaster general..

A One bedroom apartment ($350.00 per month)is being used as a garden shed because she's too cheap to buy one..

So...I'm in the middle of financing this with the mortgage broker who feels he can push it through @90% LTV- due to the equity from the docs that I supplied for expenses. (Mind you I have the actual bills for this property!)

This deal has been postponed for three months now..

Today I had her fill out a income expense form for the property, which unfortunatly,has the same figures she supplied to the mortgage brokers appraiser.
These include her tax returns for this property.
She included:
Several additional phone lines, (probally for her entire real-estate office)
Extra dumpsters from her other properties
No income from the laundromat..
Her own accounting fee of $2000.00-(Gee I didn't know Quickbooks went up that much in price),
An outrageous advertising bills $515.00 (small local paper-actual costs $260.00),
A pest control bill for $1250.00, which must include all of her other properties.,
An entertainment deduction for $785.00 (WHHAAATTT????)
And to top it off..She's soo cheap an penny wise-dollar foolish, that the rent due dates are all over the map. If a new renter comes in on the 18th of the month, instead of prorating them to the end of the month, in addition to their deposit, their rent due date is on the 18th !!!
Several pay a month behind-instead of a month ahead.
So, she has juiced the books to the point that it now comes in with a 382K appraisal..
And...
She will not hold a second!!
Or even knows what the Hell I'm talking about...
And she has other investors (suckers) in this project she's been obviously ripping off.
God help me!!!
Please find me a commercial funder at 90% LTV
All I have to do, Is properly record every penney to get a 450K+ appraised price for a Refi or resale
some people just don't have a clue....

[Dan Auito]

Claude Give Peter Forets (Forest) in our members section a shot at this. You know what to do now just convey it to a smart lender and gitter done. Thanks for the rundown, I knew it would be a worthwhile post! P.S. I gotta get one of dem dare speed loaders! :xxrotflma

[Peter Forest]

To be honest with you I know alot of landlords who follow this tradition. That is exactly what it is, a tradition. Way back when, landlords ran the property into the ground until there was nothing left. From my personal experience of dealing with landlords, I've found that a large percentage of them are immigrants or second generation immigrants who didn't have much of an education in real estate investing but knew how to pull blood from a rock.

In more current times, investors have found it easier and wiser to own commercial properties through a corporation. This allows you to make a better living by taking advantage of corporate tax incentives as a real estate investor rather than being a (slum) landlord. I think what's important here is to find out the sellers motivates then play into it.

Give me a few days to find you a commercial lender in your area. Peter

[eldorado]

Thanks for the response Peter.
Although the owner isnt an immigrant, the term :
"Glorified white trash redneck" comes to mind.. Hehe:icon_verw:SM003:

Update: I just talked to the appraisal company, They inform me that it will come in at 353K with her books and 398K with mine.
How an appraisal and mortgage company will utilize/interpet that info -is beyond my comprehesion.. Well actually not, they'll use the lowest number. I'm assuming the CAP rate has been sacraficed due to appearance or market comps (if there were any)

The thing that kills me,is that the potential to sell it for 425K is there and not realized or managed to do so..:SM031:

The one thing I hate the worst in life-are incopetent buisness people...:mad:

[Tony Putman]

I know it is difficult but remember, you are the "Problem Solver" :icon_nurs and will be rewarded for it in the future. If it weren't for the poor management :smiley11: there wouldn't be so much cash in the cow.

"If it was easy, everyone would be doing it".

Best wishes and God bless,

Tony