Relax . . . It's only Real Estate

The Business of Businesses--Buyers, Sellers and Brokers

Candice A Donofrio — Sat, 11 Oct 2008 13:21:00 GMT

When I was getting my commercial real estate training, it was taught that business brokerage was considered a sort of 'redheaded stepchild' to be avoided if possible. Specializations such as this certainly require special training and experience. Typically, business brokerages only would handle this type of transaction.

Just like property management and other specialized real estate areas, however, given market fluctuations more brokers are becoming involved in listing and selling businesses, a leasehold estate with no real estate to convey. It can be a lucrative part of our business.

Make sure you have at least one experienced mentor if you undertake listing a business--it's an ethical issue and the single most important risk reduction technique. If you are a managing broker, check with your E/O carrier--many do not provide coverage for business brokerage and some will require special verbiage in your contracts and disclosures.

Valuation of the business is a primary issue carrying much risk, as often the numbers stated by an owner offering a business for sale are not the same as the actual numbers (isn't that a shocking revelation!) :)

Be certain that both seller and buyer are advised in writing to involve their accountants and attorneys when determining value. You as the seller's broker cannot valuate the business--this is solely the owner's responsbility.

Buyer's brokers may need to instruct their buyer clients not to expect the full financials to be released until an offer is made (though basic expenses should be provided such as lease amounts, utilities, etc.)

But how do you determine if the business is generating sufficient income to 'pencil out'? (Tell ya in a minute!)

When representing a buyer for a business, especially an 'open to the public' business, educate your buyers that they are NOT acting in their best interest by interfering with the operation of that business.

This can be a 'gray area' to many inexperienced buyers as they may feel they must spend a lot of time in the property to observe. Some cannot resist the urge to chat up the help. Very bad idea.

It's best to have the prospective buyer make a provisional written offer (this can be a letter of intent) showing source of funds to close, with a reasonable due diligence period.

THEN, when a deal is made and the owner has some assurance of the buyer's intentions, buyer makes a small deposit, the principals involve their accountants to look into the finances.

After reviewing the financials, the buyer can make an additional earnest deposit and request to interview any key personnel with seller and buyer agents present. Make sure the agents are present during any interactions between buyer and any part of the business, to reduce the possibility of miscommunications.

You will probably need to seek an escrow company that specializes in business transfers as many escrow companies will not handle non real property transfers.

Anyone who deals in business brokerage, feel free to add to this . . .

Commercial Financing -- Start to Finish

Candice A Donofrio — Thu, 01 Nov 2007 20:57:00 GMT

Bob Gibney runs one of the premiere commercial financing operations in Arizona, and is a super cool guy to boot. We can all benefit from the knowledge imparted by professionals like Bob, and are fortunate in that he is generous with the information.

HERE is a really well structured commercial financing process timeline and will give you insight into how the commercial financing process works. Bob uses this in his commercial financing classes offered by the Commercial Real Estate Institute

THIS is where you can go to check out the wealth of information offered on Bob's website.

There are practically an infinite number of types of commercial loans, as they are individually tailored to the client and their needs.

Cap Rate Calculation Made Simple (or relatively so)

Candice A Donofrio — Sat, 27 Oct 2007 12:43:00 GMT

When I took my prelicensing course many years back, I had a 'not good' teacher (though he did the best he knew how, I will give him that). Or at least he was a 'not good' teacher for me. In order for me to really learn something, I have to understand in order to retain. This teacher basically told us we didn't have time for understanding--just memorize. (This unfortunately common tack, in my opinion, is why we have so many less than insightful agents running around!) Fortunately, I've had many, much better teachers since who didn't cop out that way.

This teacher told our class that calculating a capitalization rate was literally, his words, not mine . . . "rocket science"! Great. Scare the daylights out of a bunch of new agents without teaching them a really important skill!

I am not saying it's elementary to understand cap rates. There are many variables involved. HOWEVER, it's not rocket science! And should not deter any of you from pursuing a commercial real estate specialization if you are drawn to it.

Here are some explanations of the cap rate, what you need to do to figure one out and why it's important.

How to calculate cap rate (and a whole bunch of additional info, such as how a lender would approach it)

What a cap rate is and why it's valuable

Adjustments to cap rates to account for competition, vacancies, traffic and other real world variables (this is specific to storage units but could work with residential units: good chart, scroll down and you'll see some examples)

Is a lower or higher cap rate the best? It DEPENDS on whether you're buying or selling! :) )http://forpros.lowes.com/viewArticle.cfm?articleID=740 A good article from Lowe's Commercial on this.

A great analysis of how to formulate cap rates in present times!

(Thank you Mike Moloney , President Commercial Real Estate Institute, Phoenix AZ for keeping us all apprised on this good stuff!)

(PS. I'm also an instructor there) :)

Your investors will love you when you are able to use your knowledge and resources to help them make money!

Commercial Real Estate - Financing - Breaking In

Candice A Donofrio — Wed, 29 Aug 2007 16:41:00 GMT

The commercial real estate market has some vast differences from the residential market. You're dealing more with companies and less with individuals. There are more decision makers, attorneys, accountants. Different types of inspections performed on a property. Different contracts. Nowhere near the swings of a residential market.

I really enjoy commercial real estate because we deal with 'brains' more than 'hearts'. (Saves wear and tear on MINE!) If a deal makes sense, it proceeds. If it doesn't, it could be the best location or the greatest deal in the world and if it doesn't match the goals of the investor or company, it's not flying up the flagpole.

Financing also tends to be VERY different. The great news is that the loan people are not dropping like flies as we are all seeing in the residential arena. The reason is that although there are lots of creative ways to obtain commercial funding, buyers can't just walk in and declare themself a commercial buyer without having money--either their own or the resources of their business.

An employer of mine and one of the most brilliant real estate minds in Arizona, Mike Moloney who heads the Commercial Real Estate Institute, gave me permission to reprint this article he wrote about commercial financing. Hope you find it as fascinating as I did!

Commercial real estate can be broken into by a formerly residential practitioner, or by a new agent with the proper training and mentorship. Consider this avenue for a possible niche. I know I like it!

Don't forget!

Candice A Donofrio — Sat, 25 Aug 2007 00:34:00 GMT

How much water do you drink per day? Coffee, soft drinks, etc do not count. Just plain old H20.

You should be getting in at least half a gallon a day.

Did you know that most people are dehydrated?

Also, caffeine and alcohol are diuretic, so for every cup or beer you need to DOUBLE your water intake.

You will do better and feel better not to mention looking better if you drink more water!

Also, your skin, hair and energy will bless you. Grab a Dasani or whatever and let's toast to eternal youth!

We'll hit the harder stuff later. . . TGIF!

A Mind Like Pizza Dough

Candice A Donofrio — Thu, 23 Aug 2007 13:08:00 GMT

Bear with me! So much talk about depression, and all the stuff that puts us 'in our heads'. Fine! But let's remember, we can ALWAYS ALWAYS ALWAYS change our mind. So let's break free, get out of our own way and start retooling the WAY WE THINK. It's obscenely easy.

Being FBI (Full Blooded Italian), I predictably would analogize that your minds can and should be like pizza dough. And not the store bought frozen stuff, either -- the kind you make from scratch!

You MIX the ingredients, KNEAD them and let RISE for a little while (no, you don't always want to be DOING; sometimes you want to be in RECEIVE mode which is actually the most difficult place to be. But it is where the good stuff starts!)

THEN, you can KNEAD the dough again, ROLL it, flatten it out, make pretty crimp designs around the edges or just slap it up there and ready for baking. STRETCH and SHAPE into new forms. It's your party.

You can also reshape your mindset by STRETCHING the boundaries of your IMAGINATION.

What could you ACCOMPLISH if you knew you could not fail?

What do you WANT? How will you manage that accomplishment when it arrives?

HOW can you MOVE your ENVIRONMENT?

INFLUENCE others in a position to decide in your favor?

EXPRESS love? Gratitude? Joy? Dissatisfaction that will lead to improvement?

LEAD?

PARTICIPATE?

CLEAR or avoid NEGATIVITY?

Just reshape your dough, expand beyond your boundaries and consider NOTHING IMPOSSIBLE.

Imagine if everyone did this, would things be better?

I think I'm going to do that right now.

Will There Soon Be A Bloggers' UNION?

Candice A Donofrio — Mon, 13 Aug 2007 13:55:00 GMT

This ARTICLE in WebProNews poses the question. Could it happen?

Or, will this medium by its very nature defy it? So many questions -- if there was a union, would there be 'sub-unions' like techie bloggers, real estate bloggers, bootieknitting bloggers . . . you get my point.

Jason Lee Miller, a tech editor of WPN, tells us we may not want to laugh or pooh-pooh the idea necessarily.

This is a fascinating article and you may enjoy reading and thinking about it.

Blogs are turning into bucks. Bucks cause controversy.

Who Is YOUR Customer?

Candice A Donofrio — Mon, 06 Aug 2007 16:53:00 GMT

A quote from a book I've been reading, Shut Up, Stop Whining And Get A Life by Larry Winget (great book, BTW and I LOVE that title--also that Larry's an AZ resident) really got me to thinking: " Earl Nightingale said, "All of the money you are ever going...(read more)

Be Nice To Your Plants!

Candice A Donofrio — Mon, 16 Jul 2007 23:04:00 GMT

Dee Dee Dee! I have an automatic drip sprinkler system that was installed in our home 6 years ago when we bought it new (it was a model).

Never any problem till about a week ago . . . timer doesn't work. Will turn on manually but I don't want to remember to turn each valve on for 20 minutes, one after the other, twice a day. And in hundred and 'teens' temperatures, even native plants will not survive.

So why am I a DEE? Because, while looking for a new system, thinking it needed replacing, I stumbled on the company's tech support number.

A very nice lady showed me how to open the unit and CHANGE THE BATTERY.

Yep, even a hardwired in system may have a 9V battery.

Anyway, all's well that ends well and while you're at it, you might want to pick up a few more 9Vs for your smoke detectors . . .

Hijack This Blog And Save The Planet!

Candice A Donofrio — Tue, 10 Jul 2007 23:14:00 GMT

That's all. Perhaps next time I will come up with something substantial. Or not.

Referrals For EVERYONE!

Candice A Donofrio — Mon, 09 Jul 2007 18:03:00 GMT

This note was in my Inbox. I had posted my e-mail address for a couple of the girls to contact me for astrology chat, but I digress.

I understand completely that some prefer to lurk. Sometimes I do, too. Monica, who I never met before about an hour ago, sent the following and gave me permission to post in its unedited entirety, sans her full name and contact info.

Enjoy . . .

_______________________________________________________________________________________

----- Original Message -----

From: "Monica" To: <Candice@RealEstateBHC.com>

Sent: Monday, July 09, 2007 10:13 AM

Subject: From a P2 lurker-- Thank you!

Hello Candice!

I got your email from a post you just had on ReLib.

I'm an admin ass't to a Realtor, and he's put me in charge of most of the P2
stuff. I started reading the blogs and ReLib a few months ago and loved it!
I don't know much of anything about realty (I lick envelopes and do online
marketing, sometimes hold an open house or two), but I love learning what I
can from all you post-ers. I definitely know I don't have what it takes to
be a Realtor (its just not my thing) but I have gained a marked and
substantial respect and understanding for what you people do! I would love
to respond to some of the posts, as I feel like I've really gotten to know
some of you regulars, but refuse to do so under my boss's name. So I remain
a lurker.

When I saw your address, I figured you would be my lucky victim (not
Radley's victom!). Could you pass word onto the other Relibbers that even
the lowly admin ass'ts with no realty background get a kick outta their
posts? I do learn a lot too-- it's like informal real estate school with a
sense of humor! :o)

I plan on moving around the country every couple of years after I finish
school next spring, and now I definitely know where to look (and to send my
friends and coworkers!) to find high-quality Realtors.

If you do agree to pass my word on, thank you SO MUCH for being my
messenger! I appreciate it!

I'm not sure if my whole name shows up in the sender field with this email
address, but if it does, please only use my first name:

Thanks again!

Monica