If you would like to download
a printable word document of this session click
here.
HIGH RISK COMMERCIAL AND LAND NOTES!
When dealing with high risk notes such
as Vacant land or Commercial notes we need to gather more info than just the
basic worksheet. I list here some additional
questions for you to gather from the note holder when dealing with these types
of notes. If you get this info from them
on the first call then you will save yourself a lot of time and headache. If you do not gather all of the details from
the first discussion then you will have to come back over and over until you
get all the info from the note holder.
The secret in buying and brokering
these notes is to locate a safe note that is profitable for you and appealing
to an investor.
Safety in land notes:
* First, with a land note, you want to find
out if the note is on developed land, or just dirt. Developed land means the
roads, electricity, telephone, water and sewer are in, but there is no
building. Find out from note holder just
what improvements are present.
Questions to ask:
1) Is there a paved
road to the property?
2) Is the land
fenced?
3) Septic or city
sewer?
4) Is the water a
well or city water?
5) Are there
utilities? Are they underground or overhead?
* Second, you want to work with notes with recourse back to
the note payor. This means the payor of the note is personally liable if they
default on his or her payments. If it is
corporately signed it will be a riskier investment for the investor. Corporate signing means they sign as
president of XYZ Company.
* Third, you want to have a realistic appraisal on the
land value. This is not always something you will be involved with if acting as
a broker or finder. I say realistic
because developers can distort the value by selling a parcel to a colleague at
an inflated price. New buyers and some appraisers will use this phony sale
price to give an inflated appraisal. We
want to make sure that the value for the property is there.
* Fourth, you need to push harder for a credit check on the
payor. You will get a better offer, obviously from high risk notes with good
payors, who have close to "A" credit.
It is more critical on these notes to get this up front. I push the seller a little more to get me
credit right away. Let them know that
this is a higher risk than a residential note and we would like to see a credit
score in order to be able to give a good quote.
* Fifth, verify that the payor made a substantial cash
down payment on the property or that there is some very good equity at this
time on the property. This verification
can come from the closing statement or from talking to the payor directly. When dealing with these higher risk notes we
want to see a larger down payment. 20%
or more is preferable. Remember when
looking at the values of the property we have to go from the sale price.
Safety in commercial notes:
The form below comes from one of my investors I like to work with. Some of these items are on the Note worksheet
but some of it is specific to Commercial notes. Please review it and have these questions
ready in addition to the Note worksheet for Commercial notes.
Click here to download
this form
Sunvest Corp.
255 W. Napa St., Ste H
Sonoma, CA 95476
(707) 939-9450 Fax (707) 939-8476
“The Perfect Investor for the Less than Perfect
Note”
April 11, 2005
TO:
RE:
Commercial Property Deal
On commercial property type deals in addition to the
information we discussed we still like to have the following questions
addressed:
1) What year was the commercial property
constructed?
2) What is the total number of square feet of the
structures on the property? Please
described the
structures
or improvements to the property? What is the total square feet size of the
overall parcel?
3) What was the sales date? What was the Sales
price for him /her at that time?
4) What portion of the proposed sales price was or
will be attributed to Real Estate, inventory, good will,
non-competition agreements? In other words, what is the value of just
the Real Estate alone?
5) Does each unit have a separate utility meter?
6) Describe the local competition for this
property?
7) What is the present zoning of the property?
(e.g. “C-1”, “C-2”, etc.)
8) Describe the surrounding properties?
9) Describe the general economic condition of the
area?
10) Are there any recent income and expense
statements available surrounding the property?
11) If there is a business involved in the sale,
what experience does the buyer have with running such a business?
12) Can you provide us with good quality color
photographs of the subject property, what is on either
side of
it, across the street from it, and street scenes looking up and down the street
from the subject
property?
Before we can issue you a formal commitment we need
to have as many of these issues addressed as possible.
Feel free to call me with questions regarding any
of the above issues.
Warmly,
Michael Morrongiello
General Manager