Broker believes information to be accurate, but
does not guarantee accuracy and will not be held responsible for any
errors, omissions, or misleading information. Copyright 2007 Louis A.
Jenings Jr. d.b.a. C S I
FINANCING can make or break the deal, and maybe your financial worth too! It is a shame to get everything but the financing ready for a deal and then find out that your bank cannot or will not deliver the loan on a timely basis and within the constraints of the due diligence of the purchase agreement contract.CSI welcomes the opportunity to discuss your investment needs with you. We are never more than a few hours away. Our brokerage fees are very reasonable and our results are tried and proven. Believe me it can and will happen if you do not cross all of your "T's" and dot all of your "i's". You should be talking to at least three commercial lenders to let them know your investment plans. You will need to educate them on what you are selling and buying before it ever happens. This will allow you to find commercial lenders who are qualified and experienced in providing the financing that will make your loan affordable and your deal a success. Find your lenders in advance of listing or selling your property and it will save you both time and money. You can use the commitment letter from the lender to sweeten the deal with the seller. Seller's want to know that the buyer will be able to come up with the cash to close, and postponing a deal because the financing is not yet available can cost you the deal. Your commercial real estate broker should be able to help you research out the lenders who will work best for your investment needs. Here are some additional suggestions I think are wise to have ready for the deal: Prepare a package of documents for your listing broker on the property that you are selling. This package should include a confidentiality agreement that insures that any and all information and documents are not to be shared with persons or entities not directly involved in the sale, and that all documents and information will be returned or destroyed if the deal is not consummated. The documents you provide should include the name or names of your tenants, the length of their lease, any lease options, what the rent increases are, the start date of the lease, the expiration date, and option periods and terms. It should also include the lease agreement on each tenant along with all addendums, estoppels and supporting attachments referenced in the lease agreement. You should also include a copy of the most recent real estate property tax assessment along with a site plan that details the building size, the size of each rentable tenants unit and the total land size. If the lease allows it, the tenants personal financial profit and loss statement and the tenant's business profit and loss financial balance statement, along with personal and business Federal tax returns of each tenant along with any letter of explanation to explain any negative losses that might be reflected on a tenants tax return. If the tenant is a franchisee, then also get a copy of the franchise agreement. You should have a rent roll chart prepared for each tenant that shows the monthly and annual base rent, the pass through expenses, the real estate taxes, the sales taxes, the administrative fee and the total rent. If a short term lease include the annual base rent per square foot. Also show all projected annual rent increases for the full term of the lease and all lease options. Your package should include a site plan, a map of the property, an aerial photo of the property, a survey, the most recent appraisal, and demographics. The aerial map should ideally identify neighboring businesses, roads, highways, and other important points of interest. If you had a Phase I, II or III environmental report done then include that as well. If the tenant is a franchise then include a copy of the tenant's franchise agreement. Finally you should have a receipt of documents form signed by any qualified prospect to insure that they recognize that they have received the above documents and that they will return them if they do not buy and close on your property. Providing the above information (or having it readily available to provide) will speed up the sale and closing process on selling your property. When you get ready to sell, you should start looking for a replacement property or properties. You will want to consider the tax advantages of doing a 1031 tax exchange. Always allow yourself the time to review and analyze the financial profit and loss statements of the tenant. If possible, these should be audited statement by a CPA. Your CPA will also want to see both the business and personal federal tax returns of the tenant to insure that the financial profit and loss statements coincide with the tax returns. If they don't then you want to know why, and so will you bank. Have a commercial real estate lawyer to review the sales contract and supporting documents for potential problems. He should also review the lease to insure that it is well written with the landlord's best interest protected. You should get a copy of the most recent survey and appraisal from the owner along with EPA Phase I report, and you should get lease estoppels signed from the tenant as part of the lease and sales agreement package. If doing a 1031 exchange, have your 1031 exchange company ready to hold your money. They will then be able to make the needed deposits on the purchase and provide the rest of the needed 1031 cash funds for the closing. This needs to be set up with your closing escrow agent, along with your 1031 Qualified Intermediary (QI) because if it is done wrong, then you loose the right to do a 1031 tax exchange, and could cost you up to 56% of your capitol gain in federal tax payments. The worst thing that can happen is to find the perfect property, then sell your property and do a 1031 to buy the replacement property and comply with all of the terms of the contract and find out that your bank does not want to finance the deal. This could happen if they are not pre-qualified for a net leased transaction. The bottom line is that you will loose your deposit and then you will have to pay capitol gains taxes because you failed to comply with the 1031 rules. This is how ugly it could look. Let's say that you have a shopping center that you bought for $3,000,000 five years ago and now you have a buyer who will pay you $5,000,000. We will assume that your financing is $1,500,000 so your net cash after paying off the loan will be $3,500,000. This cash will be held by your 1031 Qualified intermediary (QI) while you identify your replacement property and then settle on it. Now let's assume that you identify two National name single tenant net leased investment properties at a price of $2,500,000 each. They both are offering 7% cap rates with 10% rent increases every five years and they are new 20 year leases with (4) 5-yr lease options. Your 1031 guidelines give you 45 days to identify these properties and a total of 180 days to settle. Now let's assume that you identify the property on day 10 after settlement and then on the 46th day you discover that the financials for these net leased single tenant investments do not coincide with the federal tax returns, and that the bank you are working with will not continue underwriting the deals because their risk is not within their approved guidelines. Where does that leave you? You now have to get financing and close on the properties that you identified in your 45 day 1031 identification period or you will loose your 1031 status. If that happens and you can not close within the 180 window then you will have to pay capitol gains taxes, which can be as high as 56% on "C" Corporations. Your $2,000,000 gain will be taxed $1,120,000 by the federal government and if you loose the deal with the seller because you failed to close as promised, then you will loose your deposit also. That is why it is so very important to use a commercial real estate broker who has the experience and the connections to properly advise and guide you through this complex investment. A good commercial broker is worth their weight in gold, and they will make you millions of dollars from both the rental income and the appreciation of the real estate net leased investment property. They will be your best friend, a lifelong friend who will continue to help you sell and buy when the time is most favorable to enhance your financial portfolio. CSI welcomes the opportunity to discuss your investment needs with you. We are never more than a few hours away. Our brokerage fees are very reasonable and our results are tried and proven.
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