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No Lipstick On My Pigs Please

May 3, 2008
Let's Get Real...

We both know 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.

Let's get real...

Wipe the Lipstick off this Piggie

Your job 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

You might not get all that ... ask for it anyway.

Here's what you will learn

The Financials

- Will show you actual Income and Expenses broken down by the month.
- You can track the Net Operating Income month by month for trends - is it going up or going down
- You can track any unusual expenses and ask questions to the Seller
- You can see unpaid rent and concession losses

The Rent Roll

- Will show you exactly how many units are occupied and exactly what they pay in rent.
- You can compute your own Vacancy and Loss to Lease numbers

When you compare your Actual numbers with the Broker's Proforma you can see just how much Lipstick they used.

ALWAYS make offers on your analysis of the actual numbers from the property.

What if the Broker won't give them to you?

They really aren't much interested in selling if they expect you to make an offer based on their Lipstick version of the deal.

Try this...

"I am a serious buyer of Commercial Property and, as you would expect, I make offers based on my own analysis of the numbers.

I don't buy on Proforma and neither would you.

When you send me the Financials and a Rent Roll I can get started crunching the numbers and that is the only way I can tell you whether or not I am interested."

Remember ....

A Pig with Lipstick may look mighty cute AND it's still a Pig.

Happy Hunting
About the Author
Learn the Insider Secrets of Commercial Property Investment from Monte Lee-Wen who has personally purchased over $150M in Commercial Real Estate. CLICK THIS LINK NOW to start your Commercial Real Estate Investing Education with his 14 page FREE Report "35 Reasons You Should Invest in Commercial Real Estate". http://www.investortours.com
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