The Building – Part I

I know that this post is long overdue. As the next step in my Apartment Quest series I’ll tell you about the building that I’ve been “buying” since the middle of April. I had heard that this was a long process, and I had heard that it was filled with capital “D” Drama, and so far the experience and process has lived up to it’s billing.

I finally hooked up with a great commercial real estate broker (more on this later). We settled on one building in particular that looked like a good prospect for a first buy. It was all brick, had a pitched roof, heat and electric were separately billed, and it had a “helper” on site who would show apartments. And it was priced decent at the list price.

We danced a bit on the Letter of Intent, came to terms, then spent ten days hammering out a full purchase agreement. The amazing thing was that this PA was shorter than the single family residential version that I use, because a lot of the disclosures that are required in residential real estate are not in commercial. This is probably because most of the people playing in the commercial game are big boys and girls not prone to blaming others for their mistakes or seeking help from the government when they sign something that they either don’t understand or haven’t read.

Case in point – there is no “right of rescission” in commercial real estate like there is in residential. Nope – when you buy it, you buy it.

Anyway, once we had the PA signed the due diligence period started. Again, my commercial broker out-did himself and had the three-inch high stack of documents put together in a couple of short days. I had always heard that ALL sellers of commercial property lied about their buildings, so I was prepared to dig and claw to get to the truth.

What I came to find out though, was that one of the items that’s required in order to get commercial financing was tax returns. Not only mine, but the seller’s as well for the last three years. Now I’ve been a finance guy for 20 years, and I now that the “tax books” that every company keeps represent the worst case scenario, because companies always strive to minimize their tax liability (within the limits of the law, of course) by minimizing revenue and maximizing expenses. So I was very interested to see if what the seller had said in his listing matched the actual numbers that he had submitted to the IRS.

To my shock – they matched pretty much exactly. In addition, all the supporting information matched as well, rent receipts, tax bills, insurance bills, utilities, repairs, everything. Everything except the his 2007 tax returns. Which I’m still waiting for. And waiting. And waiting. And waiting.

Check back in a couple of days for the next installment: “The Building – Part II”