Page 167 - Trump University Commercial Real Estate 101

Take Onl y Intelligent Risks

AMATEUR M ISTAKE: “ I GOTTA DO THIS DEAL! ”

This syndrome happens for a variety of reasons, all of them bad: You
might still be waiting to do your first deal, and fear has been replaced

by desperation.
Or it could be that you ’ ve already invested in a few properties, but
this one looks like a trophy to you. Maybe a rival investor is bidding on
it, or perhaps it ’ s a well - known property in your town and you fanta-
size about strolling into a meeting and announcing that you own it.
When you feel as though you absolutely must do a deal, step back
and get an objective opinion. Otherwise, here ’ s what the slippery slope
looks like:
You get the numbers from the seller. Yes, they ’ re pro forma num-
bers, but wow do they look good! According to the seller, there ’ s a big
payday at the end of this deal for you, and you start to taste it.
The seller asks you simply to put in an offer pending the compila-
tion of the actual numbers. “ Once we agree on a price, I ’ ll be more
than happy to release all the numbers to you, ” he says.
You come to terms, and you ’ re pumped — the seller agreed to take
10 percent less than the asking price!
When you get the actual numbers, you ’ re not so pumped. There are
potential problems. The income is up and down like a seesaw, and the
pro forma numbers are based on the best months. He very confi dently
assures you that with good management, the property can easily per-
form at that level consistently.
You notice that expenses are much higher than reported. The seller
has a ready explanation: He is paying for all of the utilities, but you
can submeter the property and have tenants pay for utilities going
forward. That will give you a windfall of cash, he explains.
You ’ re hungry for a deal, what he ’ s telling you sounds good, and he
seems like a real honest guy.
Even your management company agrees that it can keep the prop-
erty performing at the level that the seller had in his best months (they
will tell you this to impress you). They also agree that it ’ s possible to
submeter the utilities and collect more from tenants.
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