Normally when negotiating to buy a Residential Commercial Property you don’t disclose ways that you plan to improve cash flow on the property based on the NOI, but what if its owner financed? Would you disclose this info? :anon
This is an interesting question, which can put the owner in a precarious spot.
Presumably, the owner has accurately represented the income and expenses for the property. You will base your ability to repay him using those numbers and present this plan to him. If he comes back and says the net operating income really won’t cover your payments, then you should question him why. If he believes you can cover the payments to him with his numbers, then anything else you do to improve the property, after you buy, is your business only and need not be discussed. Educating an owner about improving his NOI is not in your interest.
Depending on his reason to sell, if you show him how to make more money with his property, at some point he just might take the deal off the market and enjoy the extra income for himself. Or, raise his price. This happened to me.
I was presented with a great out of town deal by a local broker here who happened to know the property. During my financial evaluation, I identified many errors in the offering brochure and reviewed them with my broker, who agreed the property was worth considerably more than the asking price (offered by very large commercial firm I know you have heard of). My broker joked he would call his counterpart the next day and give him a hard time for the errors. I thought he was kidding and jokingly swore him to secrecy. As I often do, I asked if it was ok to call the sellers broker for some info. Instead I received a call from the sellers broker the next day, reading my private email to my broker, acknowledging his errors, and thanking me for uncovering them. He then sent me a revised offering brochure with correct numbers and a much higher (i.e. appealing) cap rate. Unbeknowst to me, both my broker and the seller’s were good friends. Needless to say, the deal died – as did my relationship with both of these idiots.
LOL!..wow…thats a lessons learned… :banghead…So Im assuming that if they are willing to a do a owners financing deal or lease option then your due diligence #z really would be a disadvantage to them bcuz normally the #z would be lower than their offer price anyways unless your #z result in a higher NOI somehow…? :rolleyes…Im getting a better grasp of this entire concept after purchasing Monica Main’s course and reading Steve Berges’s book on buying APTZ. At the end though I think it all depends on why they want to sell and that helps you with contingencies when you have no initial funds or earnest money…IDK :help
After reading this i have another question…if im doing owner financing will i have to give him/her everything…?i.e. after NOI, his mortgage, small reserves, if I have excess funds do I keep it or does he/she?