Sales due diligence for education

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if I can walk you through a commercial deal from start to finish if I can show you how it's done in 10 steps I believe what I'm going to share with you here can change your life so in this video what I'm going to do here is is break down the 10 steps required to complete an entire commercial transaction regardless if it's an apartment building self-storage facility mobile home park the same 10 step Supply and I believe it you can if you can see it you can feel it you can probably do it yourself that's my whole goal here all right so let's get started now before I break down the 10 steps and share a couple of things with you number one is a commercial transaction it takes 45 to 60 days when you purchase a single family home or even a four Plex you can probably get it done in 30 days but a commercial transaction is more like a business transaction it does take a little longer than a residential deal okay secondly this is really important okay now you see these 10 steps over here these same steps apply if it's a small five unit building or a very large 100 unit apartment complex this same step Supply okay so you may want to focus on the larger buildings but I'll leave that up to you all right um thirdly here no experience required you need no college degree you don't have to be a multi-millionaire you don't have to be a very smart person so to speak no experience for acquired right we just uh one of our students a truck driver awesome guy you just close on an 18 year Department owning his very first deal he followed these steps from start to finish okay all right next I really believe that you can do this so my goal is after this if you can if you can hold on to the end of this video I am going to ask you a question do you believe you can do this and I'm gonna uh speak it into existence and say yes I believe you can do it now let's get started okay here are the 10 steps number one is you're going to locate an off-market deal okay and by the way what I'm going to do is I'm going to go through each steps quickly then I'll come back in the second part of the video I'm going to break down each each step just for you all right so number one it's a located off Market Commercial deal okay next we're going to analyze the deal once we analyze it we're going to make the offer once we make the offer we're gonna and it gets accepted we're going to jump into our due diligence our inspection period and do all of that fun stuff okay now once we're in our due diligence period we have maybe 30 days to make a decision if we can move forward or not okay now if we're going to move forward we can start to prepare for closing okay once we prepare for closing we get to the closing day right once we get to closing day we have our post closing activities many of you think after you close it's all done and wrong answer that's when the that's where the money is made and that's where the fun starts and that's when the real work begins is once you close your deal a lot of companies like ours they help you close the deal and that's it and that's where they go wrong all right next is accounting and Reporting this is the uh the most unsexiest part of the business is the accounting part but it is probably the most important we put large resources into our students to make sure this part is being done correctly we coach them correctly on this part okay and as part of us being responsible coaches and mentors to teach this part all right and lastly you're going to execute your extra strategy okay so these are the 10 steps so now what I'm going to do I'm going to go through each step individually and break it down for you because I want you to get it so you can see that you can do it let's do that next let's start with number one locate and off Mark a deal okay one out of ten as I explained to you I'm going to break down each of these 10 steps so you can put yourself in in the exact position to do a deal yourself all right number one is located off Market deal we have proprietary ways in our company of how to go direct their property owner engage with them and buy properties directly from them those are by far the best deals okay all right so once you're located off Market deal are you going to engage with the seller okay and uh this first step is is listed number one uh for reason property owners are not only Property Owners they're also human beings okay we're dealing with human beings so you need to get their their motivation for selling and you need to build rapport once you do that they'll give you the property information needed for example you need what their property is making per month or per year what the operational expenses are right and a rent roll which is basically a register people who live there and what rents they are paying and when they when they entered and when and when they leave okay or when they are leaving right so after you have this information you go to number two which is basically analyzing and evaluating the deal and also the market okay and I have a video a link that will appear in the screen that breaks down all the all the terms and the math and how to calculate basic numbers on a commercial deal okay that's there for you so basically to do number two you're going to calculate the cash flow the cash and cash return the cap rate and the debt coverage ratio DCR this video explained to you what these basic terms are our students have uh software when they join our firm it's called e-partner and basically they plug in the numbers and the software kicks out all of this for them okay all right so next you're going to get sales comparables rank comparables market cap rate and do an on-site visit that will cover analyzing the market okay so can you see what I did here we're going to analyze the deal first I'm going to analyze the market so once you locate a deal you do the analysis next we get to go to the fun part okay sometimes for our students the scary part but you're going to make an offer okay and you're going to use a purchase contract or a letter of intent let me briefly talk about these two 11 10 is a single sheet of paper where you put down the basic terms of the deal your offer you know your down payment your financing all in one sheet of paper is legally non-binding right so you're just putting you're putting forth that basic terms right so again it's a legally non-binding and it just it just allows you to make a quick offer okay uh in in my my opinion it's it's a weak way to make an offer if you if you've done number one number two you like the deal don't use a letter of intent go for it and use a contract okay so when you use a purchase contract and Commercial right many of you are scared okay Peter what if I get trapped in your deal no our students don't get trapped because we have contingencies in our contract we have inspection contingencies Finance contingencies title contingencies and Appraisal contingencies so if you're out there doing deals yourself make sure you have those four contingencies or you can get yourself in trouble okay all right so once you're making an offer you're gonna have to handle the calendar offers back and forth between you and the seller this is where coaching comes into play right because you're going to make your offer right and then the seller is going to come back to you with a counter offer they need to go back to him with the Condor offer he comes back to you go back and forth a few times and you really need to know what you're doing okay so this is the value of coaching that we offer to our students so we do this all day so it's not a problem for us we're really good at it next is once you're done with the counter offer going back and forth your offer is accepted you are now under contract right so now uh so this is a big step to get under contract very exciting but the work is just beginning so let's go to the to the next step which is step four all right I'm assuming that now you are under contract all right what's next all right that's what number four is once you're under contract what's next there's a whole lot of stuff to do in commercial a whole lot of stuff and I'm going to share that with you today okay all right number one is once you're under contract you enter into your inspection period or your due diligence period where you have to do their your homework on the property okay and so we call this you're going to conduct your due diligence and normally you're giving you're given 30 days to do this investigation okay now when you purchase a home or you purchase a residential four unit or less that's residential you're not given 30 days usually it's seven or ten days basically to do army homework and basically because in residential you do have consumer protection loss protecting you okay but once you jump into five units and greater you're in a commercial World there are no consumer protection Shalom says buyer beware and unfortunately the seller can lie through his teeth right and you can catch them at the end after you own the property and there's nothing you can do about it in most cases okay so that's why we're given 30 days to do all of this work okay and and if you don't have help here you need to get help all right so your due diligence is broken up into three sections your physical inspection your financial inspection and your legal inspection okay so those three now on your physical inspection you're going to walk through the property you're going to bring a professional inspector there you're going to have your proper manager there you're going to have your your electrical guy there your plumber guy there your roofer there maybe a structural engineer there everybody will be there on that day or a few days to to conduct a very thorough inspection after the inspection you're going to get repair estimates on what stuff costs to repair stairwells or to repatch a uh a parking lot or or to upgrade some of the units you get all the estimates there then you also have to check out your competition okay and it's physically in this 30 days you need to go check out your competition and see what they're doing all right next we have our our financial part of our due diligence where you're going to apply for the loan okay and and the commercial transaction the lender portion takes the longest it can take 30 to 45 days okay just to get a loan approval okay and you're only getting 30 days how do you do that well let's talk about that later all right um and then you're going to examine the income and expenses on the property okay so now that you're getting the electrical bills you're getting that the uh the tax statements you're getting other documentation from the seller you're going to compare that to what you were given a month ago okay or a few weeks ago and a lot of times there's differences there this is why again we're giving 30 days to figure this out and you're going to do what I call a deeper analysis okay on this property financially and next you have the legal portion I'll simplify it for you you're gonna you're gonna check the title the property make sure it's it's correct there's nothing on there like a lawsuit uh you can inform your loc so you can take ownership and then this is where you're going to formalize or begin your syndication docs if this is a syndicated deal okay all right and then also you're going to interview your proper managers so all all under all under this due diligence period you have 30 days okay all right now okay I'll take a deep breath here and uh this is a lot to do in the 30 days okay all right number five is after you've done all of this investigation on the property now it's cut it comes down to make a decision I call this uh step five which is the decision Point all right is this a go or is it a no-go okay now here's some questions to ask yourself after you've done all this work do I still like to deal okay based upon the last 30 days okay now that I walk through the property I examined the financials uh all this stuff do I still like to deal next were you able to renegotiate the deal with with the seller and create a win-win often times when you do your walk through and you got repairs you're going to go back and you're going to ask for a credit you're going to ask for him to repair something to make the deal better for you and and remove some of the risk so now were you able to renegotiate some of that with the seller okay and lastly this is huge these days do I have favorable lender terms okay all right so so this is a big decision Point here is getting favorable limited terms with the high interest rates maybe the interest rates you're receiving for your deal are too high and it kills the cash flow I don't know but in that case what we teach our students to do is to turn if the interest rates are high now we go back and we try to create and do something creative with the seller creative financing is huge uh today and it will be it will continue to be huge as this interest rate starts to flux up and down all right so okay so that's four once you're under contract and five you make a decision now I'm going to assume now that we're going to make a go so we're going to move forward okay to step six let's go to step six next all right once we're ready to move forward right after all this uh due diligence it's time to prepare for closing the deal okay all right so basically number six is preparing for closing uh you're gonna finalize a loan uh is the appraisal done right did their property appraised for the purchase price or more right they came in less you're gonna have to renegotiate the deal right you're going to have to clear the loan conditions I have this here so basically what this says clear local news this is always being commercial right and so you have your you know the lender will say yes it's approved and they send you a long list of sometimes 20 or 30 things that you still have to supply to them in order to get the final approval and get you know get close all right so this is huge you're going to be clear to loan conditions that means you got to send them on a lot of stuff all right next finalize your property manager agreement right so I mean many of our students they don't manage their property of them so cells they will hire a property management company this part is huge okay we I can do a video just on this part how to find and hire or sometimes even fire a property manager right next is create an operating budget all right so an operating budget is you're projecting for the next 12 months how much income you're making each month and what you're spending each month is critical in commercial real estate to do that you just can't buy it and expect cash flow you need to be intentional about with income you're bringing in and what you'll be spending to pay your mortgage and have some cash left over you have to be very intentional about that okay so he created an operating budget and the cap X schedule a capex is capital expenditures basically these are items that you're going to do one time on a property like uh replacing a roof or replacing hvacs or fixing a parking lot or building or tearing down building up new stairwells in the property okay so you need to have that all all ready to go next is you're going to finalize the plan it's an asset management plan this is something that our students have so it's a document created by us it's an asset management plan that that that helps them create benchmarks for how they're going to operate the property from day one all the way down to executing their extra strategy okay so what the capex uh is you know what your what your budget is what's day one cash flow what is day 30 cash flow what's the money money you're going to spend on day one on life and safety issues all that is is an asset management plan very important part of making sure that you know what you're doing you can be successful okay and then lastly you're going to wire the down payment but while the down payment funds and then you are pretty much ready to go here all right so after number six you're you have arrived at the closing day the closing date is here I say here pat yourself on the back that's a huge accomplishment to get this far and for a typical commercial deal this is probably the fourth between the 40th and 60th day yes 40th and 60th day of your transaction probably close to 60. okay so a lot of work up to then all right so if only closing day it should be quite uneventful okay so if you prepared well there's not much going on in the closing day you're you know all the nerves are out you're just sitting there and you're signing documents and uh it says here you'll have a one inch or two inch thick pile of paperwork to to forms the to initial sign and date you know at the closing table okay and then after that I want you to celebrate okay be grateful so do something nice for yourself but me personally I like to do a steak dinner I I love Wagyu steak it's a Japanese uh delicacy it's a Japanese steak and it's fire and it'll change your life it is so delicious it's expensive but hey I deserve after doing all this right you should too so do something nice for yourself all right okay so after closing day is here guess what the work is just beginning so I'm going to take you over to number eight nine and ten this is where the money's made let's do that next all right once you have closed your deal now the real work begins okay all right so number eight is I call post-closing activities so you've already closed your deals and um as I say here this is where the real money is made and this is what we call Asset Management okay this part of the business you you hardly will find on on YouTube because it's not the it's not the part where you get the most clicks or it's the most popular subject but it is probably the most important topic once you uh once you close a deal all right so I will briefly go over it uh so your your post closing activities uh so mainly you're going to work with your property manager and your general contractors on starting your property improvements okay and prior to this on step seven you already have this budget and schedule and everything ready to go okay next you're going to execute your value add so you're gonna you're gonna uh add value to the property or you can do renovation we call your value add renovation program you're going to start that and that could include getting tenants out uh getting the rent raises up renovation of the units uh working with the city all those types of things you have to get going okay now this is really important okay is this is your mindset right here and uh the the proper mindset we have in this part okay because now we get serious okay and is you have to have a military-like mindset is needed right here okay so you are the sergeant everyone else around you there's a privates that's the only way to get this done and get it done uh under budget or or at budget and on time if you play loosey-goosey or everybody's your best friend you're going to fail guaranteed okay all right so number eight is post-closing activities Asset Management part number nine this is probably as I mentioned before the most unsexiest part of course commercial real estate but it probably is I don't know maybe the top one or two most important pieces of commercial real estate that people never talk about and this is on your property reporting and your accounting okay did I say this this is how Empires are built through this okay now our company we spent a huge amount of resources in in setting up our students with this part in fact we have an accounting firm that we partner with and they only take our students right so it's a huge firm and they work with our students exclusively okay that's how important it is um all right so this part as I mentioned absolute must uh here so the reason why you do this you must understand the financials behind what I call the four M's in order to be successful in this business the four Ms are management money marketing and maintenance these four M's are the it's like commercial real estate it's like a four-legged stool and if one of these four M's start to fall everything falls all together eventually okay so you so you're counting and you're reporting are going to show you the performance levels of your management your money your marketing and your maintenance okay all right and then uh lastly on their point in accounting at the end is uh you really need brilliant tax planning okay because it can and will change your financial life forever if it's done well it's one of the beauties of commercial real estate it's one of the ways one of the best ways to build wealth is to have brilliant tax plan that's what I call it okay not smart but brilliant okay all right okay so now I'm going to go to number 10 which is I I know maybe overuses work but the most important part okay let's go to number 10 and wrap it up all right here we are step 10 the last step and the last step is to execute your extra strategy where you get to you get to experience the fruits of your labor you know why did you buy this property right why did you put your Hardware money into it and and work your behind off to be successful here there's a reason behind it okay uh it could be to maybe you didn't have her maybe you're older you don't have a retirement maybe you want to see if you see the writing on the wall with your job and and you would protect yourself against the layoff or leave a legacy to your family or to your kids whatever it is right steps one through nine takes you to to execute your why right and so is your execute your your extra strategy could be to buy the property fix it up do a Cash out refinance pull the money out right and then keep the property and repeat the process okay another extra strategy could be to just buy the the property fixed up and hold it long term for retirement and have you pay you know you money long term number three it could be to buy fix up the property and then to 1031 exchange it into a larger property to defer to capital gains taxes to just build a huge portfolio for your personal reasons and lastly it could be to buy fix up your property hold it and then sell it and retire all right so whatever your extra strategy is their prior nine steps take you to this point okay got it all right so thank you for hanging out with me what I want to do next is ask you questions very important to me that I get your feedback so I can do the next video okay and that question needing your answer is now after I explain to you all 10 steps okay and I broke it all down as best I could the question is can you see yourself investing now in commercial let's say right so can you see yourself yes or no if you can put in a quick yes or no in the comment box I would really appreciate it I would love to have your feedback after breaking down these 10 steps for you so I know what to do next for you for you all okay so uh can you see yourself investing in commercial estate give me a quick yes or a quick no all right thanks everyone hey I appreciate you hanging out with me uh for this entire video I really do thank you for making us number one on YouTube if you want to learn more like our students are doing go ahead and apply to our Protege program the link will appear in the screen and uh also too if you just want to learn and just read more about commercial real estate I have a book called commercial real estate for beginners the link will appear on your screen go ahead and click on it right just just download hold it and just read it right also if you want more videos like this go ahead and subscribe to this YouTube channel and I'll send you more all right thanks everyone enjoy your day and I'll see you at the next video