Make Sure You
Know How To REALLY Read Financial Statements From Properties You Are
Darin Garman, CCIM
Copyright 2006 All Rights Reserved
I mentioned the results of not doing a
good job by really taking a look at and analyzing your financial statement.
The worst thing that can happen is to get stuck with a dog property when you
were led to believe that it was going to be a huge cash flow generator.
1. Learn to look for inconsistencies in expenses and income. Make sure you
look for a REALISTIC upside as well. Most of you have heard my stories about
investors buying properties for tens of thousands of dollars less than what
that property was really worth.
As a matter of fact I just worked with an investor
that purchased a $510,000 property and the appraisal came in at $550,000.
Why? The investor knew what they were looking for in the numbers and knew
that there was realistic upside that the seller was leaving on the table – a
thousand of dollars of upside. OK - two main questions:
a) Why would a seller leave all this money on the closing table? Most of the
time they have no idea they are doing it. They get some bad advice or feel
that they really know how much the property is worth - when sometimes it is
worth more than they think.
Also, Bad Management and lazy ownership. In other
words owners or managers knowing that they need to raise rents, cut
expenses, do improvements, etc. But just don't. Ultimately leaving money on
b) Where do you find these properties? OK - Its not like an infomercial
where you start looking Monday and have a property under contract on Tuesday
morning with $50,000 cash coming to you at closing. Realistically the
majority of properties out there do not have the ability to produce money
for the buyer at the closing table, i.e., the property will appraise for the
So, it gets back to looking closely at all of the
financials and condition of the property you are looking at to see if you
have found one - also, if you are working with someone that knows what they
are doing they can call you and tell you that you have an opportunity to
make some good money at closing. So, it takes some patience and an alliance
with someone who knows what you are looking for and what you are doing.
If you have not taken advantage of my special
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