Discounting a Bad Deal or Working a Good Opp.

Posted: September 24, 2010 in Uncategorized

The time is now to move forward, and increase your capital assets in real estate. If you look around, there is a bunch of deals in  commercial real estate and business. Some of the deals are a real find and others are just buying some elses problem.

I noticed a listing I saw about 8 months ago that looked like a super deal. There is a bar or bars for sale that the property owner has advertised “Take over payments”, “All fixtures included”, “No down payment”

These deals looked very appealing but I was concerned with the last sales point “No down payment”. To the bargain seeker with an ego, these deals look like a good option. Some clients might even try to work a better deal and get it! Did they get a good deal or did they get a discount on a bad deal or someone elses problem?

Here are the “red flags” that you should look for when considering a deal that appears too good to be true.

1) Check into the history of a business. If a business has had a changes in ownership or management, proceed with caution. A building owner that is selling a business for lease that includes all trade fixtures has more than likely had someone move out overnight and left their fixtures. Only very desperate business owners or owners that could not pay their rent would do that!! Make sure you check the lease terms very closely if you decide to purchase this opportunity. Although the economy is bad, business will support the semi stupid managers and if you believe you can do better, be prepared to spend a bunch of money on learning the ropes! You can check public records to see if an owner lost his license but realize the bad publicity and closings of the bar during the infractions will cause client attrition.

2)Any deal you make or discounts you ask for need to make sense. Change positions with the seller and ask yourself if you would do the same if you were in their apparent position. Would you allow someone to move in with no money down? Would you allow anyone to take over a business in your building? What conditions would you sell this business at the price it is being offered. Changing positions will help you to separate the bad deals and buying someone elses problems. Buying a business or building because someone is having hardships can be a good deal if it makes sense, retiring, death in family, etc. If you are considering  buying a business outside of your expertise, you might question why someone in the business is not considering buying this opp.

3) Buying a business that is doing well or weathering the bad economy may be a business that seems to cost more, but in the long run, buying a business that works can only get better. These deals are not as flexible on price and it may seem that the owner is not interested in working with you. THIS is the deal you want to work on! Buying a business or building that is cash flowing is a investment that works and will get better with your hard work. Business doing well or surviving in this economy will do well when the economy returns. There are a bunch of businesses for sale and use this to work your deal!

4) A good deal may not just be the lowest price. Loans and money are hard to come by these days and if you have either, you will have leverage to work out possible owner finance terms and save the high fees of  bank financing. If you work owner carry financing, it might convince the owner to accept a lower price since they will be making additional interest on the loan they give you. If you finance with a bank, you are paying a profit to both the bank and the owner. Owner financing gives the owner additional consideration and profit or it might allow you and easier time to get qualified. If you have shaky credit, you will have a better chance of convincing the owner to give you a loan, especially if you put a downpayment of 35% or more. Make sure you do your due dilligence !!!

5) There are only  two types of buyers. Those that pay a little more than they wanted to and these buyers will complain forever that they paid too much or more than they wanted. The other type of buyer will pay what they wanted or less and they will complain they should have paid a little more for what they really wanted. With the proper due dilligence, paying a little more is a better option in the long run and you will have a happier client. Those that buy the super priced deals usually soon realize why the price was reduced and most times end up paying more for the property in renovations, adds, and improvements.

Look for the best deals and get a good price on a good investment! If you do decide to buy a fixer upper, make sure you budget an additional 25% over your budget, an additional 4 to 6 months to your renovation time when making an offer.

good luck!!  Give me a call and put me to work if you do not have an agent!!

Kenny D

cherry creek properties                                                                                                             

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