How to evaluate a commercial deal in 90 seconds

Mike: Hey, it’s Mike Hambright from FlipNerd.com and we have a quick VIP tip to share with you from Sal Buscemi, who’s going to share a tip on how to qualify any commercial deal within 90 seconds or less.

Sal: Mike, great, as we talked about before, when you look at any commercial deal, what you want to look at are five data points, and this is going to qualify whether it’s real deal or not, or somebody’s pulling the wool over your eyes.
Number One, you want the current N.O.I., the current Net Operating Income. This tells you how perform… how the asset is performing today, not yesterday, not six, eight months ago, not during its prime.
Number Two, is you want to get the proforma N.O.I. The joke in the industry, the proforma N.O.I., is that you don’t have to worry about it being a “lie” because it is a “liar”, but it allows to tell you how the asset is going to perform after improvements are made.
Number Three, you want to find out what the debt structure is. Just like when you’re taking over mortgage, “subject to”, in residential, you want to know exactly what the loans are on there. Are they performing? Are they . . . have they not been paid? Sometimes, you’ll hear all sort of different cocktail terms on there like Mez [SP] or Seconds or [inaudible 00:01:09] mortgages but you want to find out what the total is of that and what that means for us.
Number Four, you’ve got to figure out what the exit strategy is. How are you and I going to be taken out of these properties later on? Most lenders, institutional hedge funds like ours are only short-term lenders between . . . they only make loans for the max of three years. So you want to make sure that these guys taken out either through a sale or a refinance.
Number Five, and most important part, and this will tell you if your borrower or investor knows what they’re doing, is the sources and uses.
As I told you, Mike, before, just merrily saying that, “Mike is going to be your source or Sal’s going to be your source of capital and the, and the, and the use of it is going to be able to be buy an apartment complex in Dallas,” is not enough information. I want to know what those sources and uses are going to be used for and about the light number, but I also want to know how they’re going to be used.
For example, everybody expects when they move into an apartment complex that they’re going to have light bulbs and a sink. What they don’t expect, is that they going to have a nice, clean landscaping, brand new parking lot that’s paved, maybe a part-time concierge and some other bells and whistles, such as a hot tub in the bathroom.
So that’s value-added stuff that we want to see when we looking at commercial assets, so I hope that helps people qualify a lot of the commercial deals that we’re seeing right now, and that we qualify and prequalify, and you’re able to get through of deals and qualify them [inaudible 00:02:34] shark tank, if you’re real. Really, really quickly by just going through these five data points.

Mike: That’s awesome, and I assume that folks have a deal, and they’re going to present it to somebody, they should think about these same five things, in terms of how they present it to a potential investor.

Sal: Yes, you don’t want considered what we call, street poof flinger [SP]. You know, meanwhile someone is sending out a two, a 20 megabyte attachment, and just look at it in that attachment. Nobody has time for that today though. Too much distress and too much opportunity, and people want to work with people who value their time, because that’s the most important thing. Money’s replaceable, time is not replaceable.

Mike: Thank you for joining us for another FlipNerd Flip Tip.

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Mike: Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.