When you get a deal in from your broker, the marketing package usually provides actual financials as well as “pro forma” financials, i.e. the way the building should perform if it were managed perfectly. Most often, the asking price is based on the pro-forma net operating income at the prevailing cap rate for that market.
This is why the asking price for 99% of deals is always too high.
As we discussed previously, your job is to figure out the most you would pay for a building and do so in the shortest possible time.
The way I do this in the Syndicated Deal Analyzer is to compare three scenarios side by side:
- The actual financials as reported by the broker or seller
- My version of the truth
- How the building is likely to perform a year or so after I purchase it.
In the next video, I use the Syndicated Deal Analyzer to determine my maximum purchase price by comparing these three scenarios side by side.
Watch Video and leave me your comments or questions below!