Page 96 - Trump University Commercial Real Estate 101

TRUMP UNIVERSITY COMMERCIAL REAL ESTATE 101

expenses. There are also single - net leases , in which tenants
pay property taxes and double - net leases , where tenants also pay
insurance.

Estoppel Letter

This is a letter that ’ s sent to tenants by an independent third party to
verify the rents they are actually paying.
The lease may state one amount that is backed up by the rent roll,
but these numbers can be altered. Sometimes owners have side deals with
tenants that don ’ t show up on the rent roll or leases. These letters will
allow you to verify the true income for the property, and this is critical.

To find out exactly what the tenant is paying — and what tenants ’
actual security deposits are — be sure to have estoppel letters sent.
Then check for discrepancies.
Estoppels are used in most commercial transactions, but are very
rarely used in multi - family transactions.

Replacement Reserves

Be sure to include replacement reserves in your analysis. Your lender
will require that you set aside a certain amount of money in an escrow
account for replacement of capital items that wear out over time.
Capital items are larger expenses such as roofs, siding, heating and
air-conditioning equipment, parking lot repair, and so on. If you have
an A property that was just built, you won ’ t have capital expenses to
speak of. With a C property, you can expect signifi cant replacements.
Remember that C properties were built 25 to 35 years ago. Unless it ’ s
a Japanese shrine that was built for the ages, it ’ s going to need a lot of
costly attention.
You will get that money back, but only after you spend it. Typically,
you can request that reserves be given back to you from the lender
every quarter. You must submit all paid invoices to back up your reserve
request. You will only get an amount of money that equals your
invoices.

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