Commercial Mortgage Deal Killers
What keeps your deals from closing and how to avoid them.
Sometimes it seems that the hardest part of the deal is not
finding it but finishing it! Investors look diligently for
deals, put them together and then the unthinkable happens –
it falls apart. Why does this happen? There are four
primary things that are terminal to deals. Make sure they
don't apply to you!
Time is the number one killer of deals is time, that is,
the inability for an investor and their team to get a deal
closed. Delays in getting to close weaken the resolve of
all parties and make the deal more tenuous. For example,
when parties cannot get addendums executed quickly
suspicions quickly rise and often give way to canceling the
transaction. In order to assure that your deal is on track
making sure that you are ushering the paperwork with top
priority. Communicate frequently with your team to assure
that the data is flowing without delay. Use a checklist
with "drop dead dates" to make sure your deal closes on or
before the negotiated date.
Misleading your team. Another quick way to derail a deal is
to not give full and complete information to your team and
that includes your attorney, your real estate broker and
your mortgage broker. Too often, borrowers try to mask or
bury damaging information about their employment, assets,
credit scores or liens, and that information – when it
comes out – delays the transaction and "time kills deals".
Being very up front with your team will play to your
benefit because knowing this information can help your
mortgage broker, for example, to locate a better loan
program based on your situation. Always be upfront with
any hurdles you see – these are the reasons you have a team
-to help you solve these problems.
Bad analysis. Good deals are so difficult to find that
oftentimes investors are so excited to get them done that
they skip over many parts of due diligence. As a result,
they miss critical items that will hinder the closing or
kill it outright. Not performing a careful analysis of a
property's historical financials will cause errors that
will change the projected earnings numbers for a property
and, consequently, change its projected value. When
presented to a lender, they will question the valuation and
a borrower's credibility is tainted. Take the time and
make sure that your due diligence is thorough and accurate.
Over/Under Valuation happens too often. A buyer wants the
property valued as highly as they can so they can leverage
as much as the can with their lender and increase the
depreciable basis. Conversely, they lowball the property
to get a better deal. The problem lies with fair market
value and perception. When a property won't appraise it
causes delays and raises questions. Do not try to fudge
the valuation of a property. It never works.
Keep in mind that in order to make a profit on a deal,
either through cash flow or appreciation (or both), the
investor has to secure the deal first! When an investor
moves quickly, deals honestly, and works diligently they
deal will move through the process smoothly and gets done.
Shortcuts lead to bad deals.
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this article should be taken as legal advice. The VEC
Financial Group (VEC) is dedicated to providing commercial
mortgage and business financing to property owners and
entrepreneurs across the country. For more information on
how to join VEC Financial Group, please visit our website.
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