In a recession, more mature, financially strong, middle and upper management people lose their jobs and can't, or don't want to, find a new JOB!

Many of these astute people take this opportunity to search for the business of their dreams to become there own Boss to leave the rate race of making money for their unappreciative employer(s).

For the established business owner contemplating retirement, recessionary times can be the answer to their prayer to sell their business and retire comfortable by reaping the years of hard work they have expended in building their niche business profit center.

The down side to the business owner is that most are ill prepared to present their business in its best, and most profitable, light when it comes time to sell.

"Fair Market Value" of a going business is a value where a ready, willing and able buyer and a willing seller can come together and do a deal that makes sense to both parties.

"Fair Market Value" is always a function of whether the business to be sold can, through historical cash flow as reported by the last three years business Tax Returns, provide a fair return on the buyer's investment of time and money while still paying necessary debt service.

Here's the Seller's rub, if he/she has not prepared to sell properly.

Most businesses operate their enterprises to reduce their tax liabilities to a minimum. This works quite well during the growth and maturity years, but will substantially reduce the value of the business when it becomes time to sell due to reduced reported profits.

It normally takes two to three years to prepare a business for sale so that the Tax Returns justify the true worth of the business. By simply foregoing some "benefits" of tax reduction, many business owners can increase their business worth (Fair Market Value) by 25% to 100%.

This current recession will probably last 2 to 3 years due to the damage of the credit crisis. Therefore, contemplating business sellers have a like period to get their businesses in order to sell into the best selling market we will see for years.

The best way to start, if you are a business owner looking to sell at maximum value to have a professional business evaluation done "right now"!

The business evaluation will give you an idea of what your current Fair Market Value is and can be used as a tool to wring the most value from your business upon future sale simply by trading some small tax increases for a huge pay day when you sell to a great buyer.

Why leave a potential $100,000, or more, on the closing table when your business's bonus value starts with a simple Business Evaluation.

See my special Business Evaluation Coupon to get started on reaping the retirement you deserve.

Arthur L Pepperman II

Business Broker & Consultant since 1972

Woodbury, CT

800-381-9827

http://www.merchantcircle.com/business/Commercial.Mortgage.Solutions.800-381-9827

Commercial Mortgage borrowers come in all levels of expertise from expert to novice. However, the successful borrowers have one thing in common. 

Successful commercial borrowers understand that owning commercial real estate is a "business" and any loan against a commercial property is a "business loan".

To put this perspective, let us look at a "residential mortgage loan" as compared to a "commercial mortgage loan".

Given a well qualified residential mortgage borrower, the lender looks to the "income of the borrower" to support the loan.

Given a well qualified commercial mortgage borrower, the lender looks to the "income of property" to support the loan.

Taking this concept one step further, commercial real estate is normally regarded as a "business within a business" one that has to stand on its own, regardless of how successful the underlying business, or borrower, may be.

Simply put, any borrower's specific commercial real estate property being tendered for a loan, at any Loan to Value (LTV), must be generating enough cash flow to cover: 

•·         The property's normal operational expenses

•·         The lender's mandatory reserves

•·         The monthly principal and interest payments

•·         Plus, additional cash flow profit to cover both Owners' and Lenders' investment risk

To sum up, the Lender, as a business/partner investor in the property, needs to feel comfortable enough to expect the property to continue performing profitably under the Lender's absentee management, if necessary.

Now let us put the above into practice so you, as a potential commercial borrower, can pre-analyze (underwrite) an example income property that we will pretend you may want to purchase.

Assume a 6 unit apartment building with each apartment renting at $910 per month. The seller is asking $500,000 and his tax returns show his real estate taxes for the property are $10,000 per year, insurance is $3,500 per year and common utilities are $1,450 per year, including yard care, as each unit pays its own utilities. Your lender requires a 20% down payment.

You can do the following quick analysis by building a simple spreadsheet:

Gross rents are $65,520 --- or 6 apartments x $910 x 12 months.

Next we will reduce the Gross rents by 10% to cover the Lender's required reserves for Vacancy & Management to arrive at a Net Rent of $58,968

From the Net Rent, we will deduct the expenses reported on the owner's Tax Return for Real Estate Taxes, Insurance and Common Utilities which total $14,950

After the above subtraction, we arrive at what is called the Net Operating Income (NOI) of the property, which in this case is $44,018

To insure we are going to make a profit on our investment in the property, we now divide the NOI by 1.2 to arrive at the buyer's "Profit Adjusted NOI" of $36,682. This adjustment to the original NOI not only a builds in a profit for the buyer/investor ($44,018 - $36,683 equaling $7,336), but also adds a safety margin of extra cash flow to satisfy the Lender's aversion to risk.

Now dividing the Profit Adjusted NOI by 12 will give us the monthly Principal and Interest (P & I) payment that this "Business Property" can support to be acceptable to an interested Lender. This division results in a proposed monthly P & I payment of $3,057

With the use of an on line mortgage calculator we can determine that $3,057 at an interest rate of say 8%, amortized over 30 years, equals a mortgage principal amount of about $399,797

Because the derived mortgage principal amount essentially equals the $400,000 needed to purchase this property at 80% LTV, if the buyer's credit, experience and liquidity is acceptable to the Lender, this property will most likely meet a Lender's requirements for funding at the asking price.

As a result of this simple analysis, not only does the buyer know he can obtain the needed commercial mortgage necessary to purchase his new investment property, he also knows that the property will provide him a $7,336 annual cash flow profit (ROI) per year or about 7.3% return on his invested cash.

Now let us assume the above property is a 6 unit "Office Complex" with the same asking price, income and expenses and with each unit consisting of 1,000 square feet of space.

Assume also that our borrower is a successful service business owner presently leasing 2,000 feet of space for $2,000 per month.

This borrower desires to build equity not only in his business, but also in commercial real estate as opposed to making his Landlord rich. Therefore he investigates purchasing the above Office Complex commercial property, as an Owner Occupier, planning for the property to be held in a separate LLC holding company that will lease two (2) of the units to his company (33%) while keep the remaining tenants on long term leases.

Looking at the above analysis, simple math tells us that this borrower can lower his company's monthly rent to $1,820 thus saving his operating company $2,160 per year in rent, while his LLC holding company makes $7,336 profit per year. In addition, his company's rent for two units, plus the rent of the remaining tenants, will continually build him increasing commercial property equity each month as the combined rents pay down the mortgage.

In truth, the above Investor and Owner Occupier scenarios are even more attractive than presented due to the tax advantages of commercial property ownership, but that is a subject for another time.

In summary, if you are a potential commercial property purchaser, either as an Investor or as an Owner Occupier, you now understand that any commercial property that you may desire to purchase must generate cash flow sufficiently to cover all expenses, reserves, the proposed P & I, ---- plus show a profit!

Grasping this simple concept, and utilizing it, will save you untold time and frustration, gain you advantageous leverage with Sellers and Lenders and ultimately take you to the promised land of owning a "profitable" commercial property portfolio.

By simply creating a small spreadsheet resembling the above analysis, you too can pre-analyze (underwrite) most commercial property deals like an expert!

____________________________________________________________________________________

Arthur L Pepperman II's career in small to mid sized business consultancy, bank consulting, business and commercial real estate brokerage and professional business evaluating led to his creating CMS Funding. CMS Funding has recently become a Division of Commercial Capital Ltd, a virtual direct lender that has funded $100 million in commercial loans so far in 2008. Further business information can be found at http://cms-funding.com and http://commercialcapitalltd.com/cmsfunding

Article Source: http://EzineArticles.com/?expert=Arthur_Pepperman

Commercial Lenders do have money to lend and still need to buy loans. However in this post Sub Prime era, Lenders have a "back to reality" mentality.Direct Commercial Lenders still want good loans and will gladly fund loans that meet historic standards!

Most of the "investors" that market to commercial brokers are not real lenders. They are correspondent lenders, who then wholesale their loans to the big bank lenders. The credit crunch has both constricted their lines of credit and their ability to sell into the secondary market. That is why Interbay, Silver Hill and others have cut back operations, downsized and given the commercial broker industry the perception that no one is presently lending.

Actual demand for commercial loans is substantially up over 2007 and not being met with fundings. Therefore direct commercial lenders are having to become more reliant on both commercial and residential brokers who can weed out good commercial loans from bad. As a result, 2008 can certainly be a banner year for experienced professional commercial brokers or those who are willing and able to learn the intricacies of matching good loan requests with direct lenders who want that particular niche deal.

Below are some quick tips to help YOU fund more commercial loans:

· Partner with the right sources for your commercial loans

· Don't be greedy with your commissions. Earning a point on any commercial loan over $1M is normally sufficient. Two points on deals under $1M won't raise lender flags.

· Pretend that it is your money that you are lending. If you wouldn't do the deal, don't waste your lender's time and your perceived level of expertise.

Finally, focus on the right property niches, products and underwriting standards that will fund in this present market.

Acquisition and Development deals are dead in this market. Fear has run lenders out of the business at this moment.

Stated Income (No Doc) deals are rarely being funded now. The property will have to have a very strong cash flow, meaning a 1.25 or better DSCR. Expect purchase LTV's at 70% or lower, 65% for rate & term refinances and 50% for cash out, and generally only if the cash is going back into the property.

Investor deal are funding at 75% to 80% LTV, if the property strongly cash flows, the owner has at least 3+ years experience in the requested niche and amble liquidity.

Be careful with hard money deals. Hard money lenders tend to live off due diligence fees in tough times to shelter their money until the economic smoke clears.

Owner Occupied deals are being funded at between 80% and 90% LTV and rates are historically good. Professionals purchasing new office space can find 100% financing, including build out, so this market is hot right now!

Knowing the market parameters will help you find fundable deals right now, --- if the deals make economic sense and demonstrate strong cash flow. Screen out weak deals quickly so you can focus on the good ones.

Debt Service Coverage is KING in this market!

During the past 5 years of "Easy" money, even commercial lenders let DSCR's slip so they could compete with other lenders and get their money on the street. The result was lower Cap Rates that inflated prices of commercial properties.

The shock of the sub prime mess gave all lenders "religion" again and debt service ratios are back to historic norm's of 1.2 to 1.3 which means properties appraised last year, say at $1M, will probably not cash flow enough to fund today at that price, under the "born again" DSCR rules.

Forget past appraisal values! They mean nothing in this market. In today's market, a new appraisal will depend solely on debt coverage to arrive at value. Comparables and Replacement Cost analysis is just fluff and will be discounted to support the value arrived at through acceptable debt service coverage analysis.

As a Broker, it is your job is to educate your clientele of the realities of the present commercial financing market.

If a deal won't cash flow to a DSCR of 1.20 to 1.25, the assumed value of the property is too high for the normal buyer who wants 75% or higher financing. Remember, the higher the LTV of the loan, the tougher it will be to meet the necessary DSCR.

No one can predict the future, but it appears that the paralyzing fear that has gripped the commercial market is waning. Spreads are slowly coming down. More securitized deals are being sold. All this bodes well for the brokers who understand the present market and choose their lender niches well.

In good times and troubled times, businesses and investors always need new sources for capital. Supply and Demand always dictates that there are good deals that need funding today and there are lenders who are ready, willing and able to provide the funds.

The key to success in this new era of commercial brokering is recognizing the realities of the present market, finding good loan requests that make economic sense and presenting them professionally to direct lenders that specialize in your loan's niche.

The old pros, who have been through inevitable peaks and valleys of mortgage origination, know how to prosper in both good and not so good markets. However, the new pros, who have only practiced in the new Millennium, may find the following useful.

Any originator worth his/her salt has boat load of client files 6 or more years old safely tucked away for reference and mining for repeat purchase or refinance residential business.

Successful originators systematically pull old files and contact their clients knowing personal circumstances change and remaining in touch can mean capturing new repeat business.

What is often overlooked when mining old files is that there is far more potential for new business than just reviewing old 1003 forms for potentially new "Residential Apps"!

While the stuff has hit the fan in the residential mortgage market, the commercial mortgage market has been, and still is, growing exponentially!

Plus, the commercial market will continue to grow, not only from normal demand, but because an Aircraft Carrier sized amount of commercial mortgages were written in '03, '04 and '05 at super low rates with 5 year balloon clauses!

Therefore, it is reasonable to assume that your 1003 files contain a boat load of clients you have successfully financed residentially that have some form of business ownership. All you have to do is identify those with business interests and open up a new source of substantial income simply by making a "staying in touch" call.

I can hear the groans now.  But, I don't do commercial!  Commercial is too complicated! I don't have the time to learn a new business!

Let me give you some motivation. 

The average commercial deal is about $1,000,00 and earns and average of 2 points to the broker. That's $20,000 in commission per deal. Mining 5 to 10 previous clients facing a balloon induced refinance in the next year and co brokeing the deal with a Professional Commercial Broker can put some substancial extra dollers in your pocket in the next year.

If you want to tap into the commercial mortgage business without learning a the intricacies of a new B2B business, then refer your potential deal to me and perhaps gain a substantial referral fee if your lead closes.

Well there you have it. Do what you do best as a residential broker and tap into extra income available in the commercial market when the need arises.

Simply ask your past clients with business interest if they plan on refinancing or expanding in the next year by tapping the equity in their existing commercial property.

That quick conversation may bring you a high tide of business.

Arthur L Pepperman II, CCLO
CMS Funding
Southbury, CT 06488
800-381-9827
info@cms-funding.com
alpii@lr.net

http://cms-funding.com