04/14/2023
What about financials?
Almost every buyer upon first contact asks for financials. That is not the way the commercial real estate game is played.
Buyers, I am going to give you some very powerful advice right now.
When you want to buy a commercial property, have your ducks in a row. Have a brief financial statement available that specifies where your funds will come from , and brief credit info.
When we bought commercial properties over the years , I go in with a copy of my credit report and a financial statement, AND a brief bio about my real estate history. Why? It gives you instant negotiating power.
The seller (and their agent) recognizes that you are the real deal and can make it happen. They are going to pay serious attention to you.
Now, when you do get financials from an income property, you should expect to see the previous 3 years profit and loss statements.
Any offer you write to purchase should include a request for the previous 3 years tax returns. With that said, if you don't understand corporate tax returns, have an accountant look at them with the P&Ls.
Note: P&Ls will not match tax returns! Why? Because P&Ls should show the hard costs of the business, i.e. real estate taxes, utilities, repairs, etc.
Tax returns should show all costs including soft costs, i.e. depreciation, mortgage interest, etc. A well run small business should strive to spend their money on improvements and items that will enhance the business. Would you rather give money to the IRS, or spend it within your business?
Recognize that many properties not only have property related expenses, but personal expenses that can be tax deductible. The idea is to live well while not paying lots of taxes!
Jim DesRoches
