Page 251 - Trump University Commercial Real Estate 101

The Right W a y to Sell for Maximum Profit

A MATEUR M ISTAKE (C ONTINUED)

That same nickel - and - dime mentality will compel the investor to
extract every last dollar out of the property that he can.
Do not maintain too high a price. Notice that I used the verb maintain
and not set . It ’ s perfectly fi ne to come out of the gate and set a very high
price for your property to see if investors will bite . Sometimes they do,
and it would be a shame to miss that extra profit, just because you didn ’ t

ask for it.

It could be that an investor is coming out of a Section 1031 like - kind
exchange, must purchase a property of a certain size quickly, and has
the money to do it. Other investors may be under pressure to get into
deals before a fiscal year or quarter ends. Whatever the reason, it ’ s nice

to be the beneficiary of such urgency.
If no one expresses interest at the higher price, smart investors
pull back to more of a market price. Dumb investors keep their price
right up there with their ego — too high.
Most buyers will put down 20 percent on the property and take
out an 80 percent commercial loan. Most lenders will not lend on a
property with a debt coverage ratio below 1.2 or 1.25. Remember, that
ratio is governed by how much income the property generates.
Therefore, setting the price too high — while the income remains
constant — means that the debt coverage ratio begins to look bad.
If your property comes in below 1.2, you must either lower your
price or the seller must put more money down for the loan to work.
Unless you ’ re in a really hot market, don ’ t count on the buyer making
a larger down payment.

How to Know When to Sell

Your next moneymaking skill is how to recognize when it ’ s time to
take your chips off the table and sell that property.

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