Page 128 - Trump University Commercial Real Estate 101

TRUMP UNIVERSITY COMMERCIAL REAL ESTATE 101

The third offer requires none of your cash, but will be the highest
number. Not only are you recognizing the seller ’ s time value of money,
but your property value should increase down the road, and you ’ ll be
in a position to share some of that wealth.
This strategy is especially useful when you buy smaller commer-
cial properties. Be careful, though: When you buy larger commercial
properties from people who ’ ve been in the game for a while, this strat-
egy will be ineffective. Few people use it on those bigger deals.

Using the Seller ’ s Operating Statements

This can be powerful. Let ’ s say the seller is digging in and not budging
on a price that ’ s outside your strike price, based on the numbers you
ran. Pull out the seller ’ s own operating statements and review their
contents.
Show the seller that the property wouldn ’ t cash flow properly at

the price he is asking. You explain that banks are getting stricter all the
time on how much NOI you must demonstrate in relation to the debt
service. This is called the debt coverage ratio and we discussed it earlier.
It ’ s calculated as follows:

N O I

D e b t C o v e r a g e R a t i o ____________

D e b t S e r v i c e

Banks usually want to see a debt coverage ratio of 1.2 or better.
This means that for every dollar of debt service you pay, you have
$ 1.20 of net operating income.
So you say, “ Mr. Seller, based on the numbers on your own operating
statement, the debt coverage ratio on this deal is only 1.05. All the banks
I can find will not finance the deal unless it is 1.2 or better. I fi gured out

the price that would get us to 1.2, given the NOI of the property. That
price is $ X. ”
The seller ’ s most common response to this statement? “ Okay, if
you put down more money, you ’ ll be able to raise the ratio to where it
needs to be and I don ’ t have to come down on price. ”
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