Want To Know How To Cash Out & Get Paid On Commercial Real Estate Deals? Well, you’re in luck, because we covered this on the recent Commercial Property Workshop Preview Tele-Training.
Missed the call? Well, you’re in luck, because this time, believe it or not, we were actually able to record the call, and in a very short time, we’re going to post the recording for you to be able to listen to right here.
In the meantime, we wanted to give you a brief outline of what Jayme covered on the call, so you can learn how to cash out of your commercial real estate deals and get paid everything you deserve from these ultra-lucrative deals.
Great Guest Speaker
The guest speaker on the tele-seminar was RealEstateProfitCoach.com’s very own mentor, Jason Schubert, who has become quite a commercial real estate guru in his own right, currently in the middle of two very large commercial property deals.
Case Study – Jason’s Hotel Deal
The deal we’ll talk about in our little case study iis an 88 Unit Hotel, purchased as an REO from a hard money lender. It has a $1.75 million ARV (after repaired value) and a value of $1.25 million in its current condition.
Jason purchased the property for $789,000. It needed $400,000 for fix-up.
He then brought in an equity partner, so that he was able to acquire the property for NO MONEY out of his own pocket. Jason then persuaded the lender to finance both the acquisition AND renovation of the property. He has an SBA lender taking down 40% of the loan upon completion.
This property will cash flow within 30 days and is currently covering its debt service. However, it should cash flow about $30K per month with additions being made in about 30 days.
What Can You Learn From Jason’s Deal
The Importance Of Maximizing Profit Potential
- Closing Timing – the best time to close is on the third of the month due to prepaid interest and to get the rents credited to you at the closing. Make sure to send out a flyer to all your tenants changing where their rent payments are to be made.
- Valuing The Deal – buy high and sell low. Cap is the return on investment assuming all cash. For example – 10% return based on current NOI gives return so sell on lowest accepted return and buy on highest accepted return.
- Value Added Investment Strategies – approve appearance with a “paint & polish”, correct any mismanagement, change tenant profile without prejudice.
- Highest And Best Use – for example, an abandoned grocery store or big box store can be converted to an open air multi-retail or flea market. Most anchor tenants pay less rent than other tenants, so create a property that has an anchor with plenty of room for smaller higher rent paying tenants. For example, you may want a grocery anchor to draw customers to your center, which in turn attracts smaller store tenants hoping to capitalize on the traffic generated by the grocery store.
DIFFERENT STRATEGIES FOR CASHING OUT:
Flipping A Contract
- Include the phrase “it’s successors and/or assigns” to make it assignable
- If the seller asks for proof of funds, have your new buyer put up the proof and use that for your proof to the seller
- Have the new buyer put up whatever you require for your earnest money deposit
- Your fee may be shown on the HUD-1 so prepare your seller and have a fee agreement signed in advance.
- Tie the property up under option and change its use to one that is higher and better than the current use. Make the option or the contract contingent on the usage change. Examples: a) Buy an old hotel or motel and turn to assisted living, b) Buy a tract of raw land and get it entitled for something the city needs, c) Condo conversion
- Sale leaseback – for company to get off-balance sheet financing, they will sell the property to investor and lease it back
- Joint Venture – you can stay in the deal and have partners upgrade and create value & then take you out
- Carry paper- be a mezzanine lender and charge a high interest rate. Mezz financing charges 16% to 18% but it is usually in second lien position.
- Run an ad in a real estate originated paper – indicate seller financing available, upside potential, value added property, “barrier to entry” where no other properties can be built adds value
- The best way to choose a Realtor is look for a specialty broker. Since you know your market, find properties that a broker has sold for more than you thought they were worth. Chances are they are a good Realtor if they can do that.
DOS AND DON’TS
- Do – check licensing requirements which vary regarding mortgage brokerage from state to state
- Do - Get signed contracts
- Do - Get signed brokerage agreement or fee agreement sent to Title Company in advance
- Do – When flipping a deal, make sure you have both contracts tied down in advance
- Do – Use reputable title company that is nationally known
- Do – Have your funds available in advance
- Do – Make sure all third party reports are done in advance
- Do – Make sure your entity docs are up to date – articles of incorporation, certificate of good standing, corporate resolutions.
- Don’t – Take anyone’s word for it that you don’t need a contract because they are good for their word.
- Don’t – Assume anything, get all the details in writing and signed off on in advance.
- Don’t – Wait until the last minute to get your ducks in a row, you WILL be sorry if you don’t do it in advance.
Conclusion
As you can see, we covered a lot of really important ground on this call. This was just some of the information Jayme plans to cover in her Commercial Workshop in November. We hope to see everyone there!
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