The Silvano Group

What we are talking about is financing for an investment property that needs rehabilitation (a rehab, a foreclosure, a handyman special, a renovation project, a fixer-upper, a condemned home, etc.). We will review how an investor can purchase and rehab a property using various financing methods.

Before we discuss the different ways to finance investment properties and the pros/cons of each method, we will need to review some of the factors to consider when investing in rehab properties. More often than not, there will be competition when making an offer. Often times, the sellers will be banks looking to sell off their portfolio of foreclosures in order to rid their balance sheets of non-performing assets. Sellers not only want the highest offer to maximize their profit, the seller wants to be certain the buyers financing is solid. We all know that a pre-approval letter isn’t always worth the paper it is written on. However, when the buyer knows their financing is solid they can be bold enough to make their earnest money deposit non-refundable. This alone shows the seller that you or your client you are a professional buyer and that your offer is real (this is the best pre-approval I know of). Often times, this is the difference in a competitive offer scenario.

Let’s now turn to the many ways to finance rehabs. This financing should include funds for acquisition of the property, renovation costs, and closing costs. Some of these methods will not surprise you but you will have clarity as to the best financing method upon conclusion.

1. CASH: Cash is king but only if you have it. It’s that simple. Cash helps on offers because you do not need a pre-approval letter, however, you should be prepared to provide proof of funds. The negative side of using cash is that you are tying up your personal assets until the property is sold or refinanced.

1. LINE of CREDIT: If you already own real estate with substantial equity than this is the next best thing to cash. Be prepared to show proof of your line of credit when requested by seller.

1. A PARTNER: You may have a partner who has cash – other people’s money (OPM) at it’s finest. The down side is that you have to split the profits and probably do most of the work. This has the potential of a marriage a 50/50 chance for divorce. In addition, you do not have the security of knowing the funds will be available since the funds are not yours. Partners often times will get cold feet prior to closing and back out of the loan.
2. BANK FINANCING: Yes, there are loans available from banks for purchase rehab money only. Usually, these are local banks and it’s always good to have a relationship with a local banker especially as you move on to bigger and better projects. In order to qualify for this type of financing, you must have a good credit history, a good debt-to income ratio, and good tax returns for two years. The downside is that they will require tons of paperwork, the process will be long and drawn out, and lastly you will have to come up with at least 20% of the purchase and 100% of the renovation costs plus all of the closing costs. Not bad if you have money lying around, you are patient, like paperwork, and don’t mind making monthly payments on a vacant house. Like any real estate financing, the lender will limit you to a loan to value (LTV) but in this case it will be calculated off of the after repaired value (ARV) (LTV’s are rehab loans are usually 70-80% of the ARV). The will usually have a six month term on this type of loan which would also be the case in the following types of loans as well. Six months is plenty of time to renovate and sell or refinance the loan.

1. HARD MONEY: You can borrow 100% of your purchase, renovation and closing costs. These are great loans because they are “NO MONEY DOWN” loans. One of the best ways to use OPM. The downsides are that these local deep pockets individuals who will loan you this money are expensive!!! Expect to pay no less than 10 points (a 10% fee added to the loan principal) and no less than 15% interest. Not bad if you consider that it is a cost of doing business and in most cases this is not a concern because you found a motivated seller and you will still have some great equity left in the property. As with Banks there will be an LTV (loan to value) usually 65-75% of the subject to value. THE REAL DOWNSIDE to this type of loan is the monthly payments that will be required. These payments can be pretty steep especially when you consider that the property is vacant and no one is paying rent while you are renovating and marketing to sell or in the process of refinance. These lenders will give you between three to six month loan term. They charge high fees (typically an additional 5 points) for loan term extension. They are however more lenient than the local bank regarding paperwork and sometimes on the credit score minimum.

Overview

All sales and exchanges are taxable, unless a specific provision of the Internal Revenue Code (Code) says that the gain or loss is not recognized. Section 1031 of the Code is one such provision. The rationale is that when a taxpayer exchanges an asset for another asset that is “like-kind” to the one disposed, there is a continuity of investment, and the taxpayer should be able to defer payment of the tax. The tax is deferred by a “carryover” tax basis into the new asset. The gain would be taxed later upon a sale or exchange in which no “non-recognition” rule applies. A simple principle, but there are many Regulations, court decisions, and IRS pronouncements one must know to gain a working knowledge of Section 1031 exchanges.

Key Concepts

Qualified Intermediary

A Qualified Intermediary (QI) is a person, other than a disqualified person, who enters into an Exchange Agreement with the Taxpayer and receives and transfers (or is deemed to receive and transfer) the Relinquished and Replacement Property. The QI must receive the proceeds from the sale of the Relinquished Property, and the Taxpayer cannot have actual or constructive receipt of the proceeds during the Exchange Period, except to acquire identified like-kind Replacement Property and certain transactional expenses. Typically, a QI does not take actual title to either the Relinquished or Replacement Property. Under the Regulations, the QI is “deemed” to acquire ownership when the QI receives an assignment of rights from the Taxpayer and contract seller of the Relinquished Property (if different) and another from the contract seller of the Replacement Property. Notice of the assignment of rights is given to all parties to the contract, and then title to the property is directly deeded to the buyer (for the Relinquished Property) or the Taxpayer or its nominee (for the Replacement Property).

Identity of the Taxpayer

The Taxpayer selling the Relinquished Property must be the same Taxpayer for federal income tax purposes acquiring the Replacement Property. This issue occurs frequently in partnerships, tenant-in-common arrangements considered as partnerships, and in mid-exchange corporate reorganizations. Use of single-owner entities to acquire Replacement Property that are disregarded as separate entities from the owner, such as single member LLCs, will not change the identity of the Taxpayer.

Disqualified Person

A disqualified person is a person other than an agent of the Taxpayer. Certain persons, such as an employee, attorney, accountant, real estate agent or broker, investment banker, or investment broker are deemed the Taxpayer’s agents for a period of two years. There is a safe harbor against agency for “routine financial, title insurance, escrow, or trust services for the Taxpayer by a financial institution, title insurance company, or escrow company.” There is another safe harbor against agency for “services for the Taxpayer with respect to exchanges of property intended to qualify for no recognition of gain or loss under Section 1031.”

A QI can also be disqualified by being “related” to the Taxpayer. There are many relationships that could cause a QI to become related to the Taxpayer, such as serving as a trustee or fiduciary for the Taxpayer.

A QI can also be disqualified as a result of being related to a person or entity that is an agent (or deemed agent) of the Taxpayer. Currently, there is an exception for this type of disqualification applicable to a bank QI or a bank-owned QI when the reason for disqualification for the QI would be that the QI is related to an affiliate that performed investment banking or brokerage for the Taxpayer.

The penalty for using a disqualified person as a QI or EAT is the loss of the safe harbors, and likely a failed exchange. If there is any doubt about other activities that a QI or an affiliate of the QI is an agent, the Taxpayer should use an independent QI or EAT.

Exchange Accommodation Titleholder

An Exchange Accommodation Titleholder (EAT) is a person, other than a disqualified person, who enters into a Qualified Exchange Accommodation Agreement (QEAA) with the Taxpayer and acquires “qualified indicia of ownership” of either the Relinquished Property (in an “Exchange First” reverse exchange) or the Replacement Property (in an “Exchange Last”) reverse exchange. The Taxpayer must identify Relinquished Properties (in an “Exchange Last”) transaction within a 45-day Identification Period, and the EAT must dispose of the Relinquished Property (in an “Exchange First” reverse exchange) or the Replacement Property (in an “Exchange Last” reverse exchange) within 180 days of the day that the EAT acquires qualified indicia of ownership of the parked property. Revenue Procedure 2000-37, 2000-2 C.B. 308 establishes a safe harbor for both Exchange First and Exchange Last reverse exchanges, and permits a number of non-arms’ length agreements to exist between the EAT and the Taxpayer. The parked property is treated as if the EAT is the owner for federal income tax purposes.

Relinquished Property

Refers to the property that the Taxpayer is disposing of in the exchange.

Replacement Property

Refers to the property that the Taxpayer is acquiring to replace the Relinquished Property.

Qualified Use Property

Only Relinquished Property held for investment or held for productive use in a trade or business is eligible for a Section 1031 exchange. The Replacement Property must also be held for investment or productive use in a trade or business. Property specifically excluded from Section 1031 includes: (1) inventory; (2) stocks, bonds, notes, and securities; and (3) partnership interests. Personal use property, such as vacation homes, is generally not eligible for Section 1031.

Like-Kind Property

Real Estate: Generally, any fee simple interest in real estate is like-kind to another fee simple interest in real estate. A leasehold interest in real estate with a term of thirty or more years (including options) is like-kind to a fee simple interest. The term “like-kind” refers to the nature or character of the property, not its grade or quality. The property’s use is not relevant, so for example, unimproved land can be exchanged for a multi-family building. Interests other than fee interests, such as leaseholds of less than 30 years, easements, and transferable development rights raise interesting like-kind issues often requiring analysis of state real property law.

Personal Property: The like-kind standard for personal property is narrower than for real estate. Personal property is like-kind when it is “like-class” within the meaning of Treas. Reg. §1.1031(a)-2, or like-kind within the general like-kind standard. “Like-class” is a safe harbor met when the Relinquished and Replacement Properties are within the same General Asset Class or, if not within any General Asset Class, like-class by being within the same Product Class under Division D of the Standard Industrial Classification Manual. If property is not “like-class,” no inference is made that it is not like-kind under the general standard (i.e., character or nature).

Identification Period

The Identification Period (ID Period) begins on the day that the Relinquished Property is sold and ends on midnight of the 45 th day thereafter (irrespective of whether the 45 th day is a Saturday, Sunday, or legal holiday), counting the day after the sale as Day 1. During the ID Period, the Taxpayer must identify a limited number of Replacement Properties in writing to the QI. Properties may be identified as alternative or multiple properties. There are two general rules that are used: (a) the “three property rule”; and (b) the “200% rule.” Particular care must be given to the adequacy of the description of the Replacement Property. Issues often arise in describing property under construction and in acquiring undivided interests as Replacement Property.

Exchange Period

A Taxpayer must commence and complete its exchange within the Exchange Period. The Exchange Period begins on the day the Relinquished Property is sold and ends on midnight of the 180 th day thereafter (irrespective of whether the 180 th day is a Saturday, Sunday, or legal holiday), counting the day after the sale as Day 1. If the Taxpayer’s tax return (for the taxable year the Relinquished Property is sold) becomes due before the 180 th day, the Exchange Period will be LESS THAN 180 days, unless Taxpayer obtains an extension to file its tax return. A calendar year Taxpayer with an April 15 return due date, commencing an exchange after October 17 will have its Exchange Period shortened unless it files for an extension.

Constructive Receipt

If the Taxpayer actually or constructively receives the proceeds from the sale of the Relinquished Property during the Exchange Period, the transaction will be a taxable sale and not a tax-deferred exchange, even if the Taxpayer ultimately receives property from the QI. A Taxpayer can receive proceeds at the time of sale from a party to the transaction other than the QI, such as the buyer or the title company, and the proceeds will be taxable boot. However, actual or constructive receipt from the proceeds held by the QI causes the transaction to become taxable. Generally, there are only three circumstances in which the exchange proceeds can be released to the Taxpayer: (1) at the end of the 45-day ID period if there is no additional identified property the Taxpayer has not already acquired; (2) at the end of the Exchange Period; or (3) after the end of the ID period, but before the end of the Exchange Period, if the Taxpayer has acquired all of the Replacement Property it is entitled to receive under the Exchange Agreement. Otherwise, the exchange proceeds can be used by the QI at the Taxpayer’s direction to acquire identified Replacement Property and pay certain transactional expenses.

Is this a good time to buy a commercial real estate property?

Many people ask me this question and the answer is always the same: “You are not buying the whole market. You are buying a specific property in a specific market”. And no matter the market, the most important factors for success remain the same. The correct reasons for buying a commercial income producing property have nothing to do with the local comparable sales like residential real estate investing; they have everything to do with the size of the income and quality of the Tenant along with the lease and terms that go along with the deal.

In commercial investing you are the buying future streams of income that will be produced by the asset. So your success is almost guaranteed if you focus on answering the following questions during your due diligence:

1) How much is the property producing in net income?

2) How safe is the income? (Based on the Tenant)

3) For how long should I expect to receive that income? (Based on the Lease)

4) How much will the financing cost me? (Based on the Bank)

5) How easy will it be for me to keep the property? (Is the lease NNN- do I have deferred maintenance to deal with?)

6) How much positive cash flow will I make?

7) What is the potential for a higher and better use for the property? (Now and in the future?)

What other deals are out there? (To have an alternative option for the use of my resources)

9) Will I still have some money left over for cash reserves?

If you know how to go through these questions and based on your training can answer them with a high degree of certainty, then the market in general is absolutely irrelevant.

An untrained person looks at general data like “office space” occupancy levels in a city, and he/she sees that the number of vacancies have increased statistically so he/she panics before even looking at a specific property and who is renting, what is the asking price, what is the potential is etc.

I always say news is how you perceive it based on your mental models.

I find it a lot more predictable and accurate to forecast long streams of income on a commercial property with a quality Tenant who signed a long term lease with specific escalations than trying to speculate on a stock market fundamentals or futures, commodities, currencies, or residential cyclical investing.

What never ceases to amaze me is how little competition there is in commercial real estate. Most people are untrained and have no business model for this type of safe investing so they lose money in so many other ventures that are unpredictable or cyclical based on general market and political events.

THE IMPORTANCE OF GOOD RECORD KEEPING

    As the owner or manager of a small business, you invest tremendous time and energy to ensure your company’s success. You want the greatest possible return on your investment, and good financial records can help.

  Your Key to Success Is Information

    Think back to the steps you went through to open your business. From the start, you’ve done everything right. You invested a tremendous amount of time in gathering information – about your abilities, finances, market, customers and competitors.

    You understood why you wanted to go into business – the opportunity to be your own boss, a desire for financial independence, the freedom to set your own course.

    Then you chose the business “right” for you. And, more importantly, your market research showed that your particular “business dream” was in demand.

    You then took all this information and developed a business plan- the same business plan that helped you get the loan you needed to open the doors. You demonstrated your business skills to the bank stating precisely how much money you needed, why you needed it, and how you were going to repay it.

  What Went Wrong?

    While it’s true that success often brings success, it’s equally true that success often breeds failure – particularly for a small business.

    That’s because as a business begins to grow rapidly, the owners often work frantically to simply meet demand, minimizing the time they devote to keeping good records.

    If escaping paperwork was one of your reasons for starting abusiness, it is critical that you hire someone to perform the necessary task of keeping your financial records. Although you must pay for these services, bear in mind that solid financial advice frequently can increase your profits, more than covering the professional fees.

    Good records will help you answer important questions about your company’s financial health. What’s really happening in my business? Why is cash flow always a problem? How much is real profit anyway? If you’re not exactly sure, then it’s time to return to the basics – the basics of good record keeping.

  WHY?

    Simply put, a small business that fails to keep complete and accurate financial records places its long-term success and survival in grave doubt.

Complete and accurate financial record keeping is crucial to your business success. Here’s why:

 1.   Good records provide the financial data that help you operate more efficiently, thus increasing your profitability. Accurate and complete records enable you, or your accountant, to identify all your business assets, liabilities, income and expenses. That information, when compared to appropriate industry averages, helps you pinpoint both the strong and weak phases of your business operations.

 2.   Good records are essential for the preparation of current financial statements, such as the income statement (profit and loss) and cash-flow projection. These statements, in turn, are critical for maintaining good relations with your banker. They also present a complete picture of your total business opera tion, which will benefit you as well.

 3.   Good records are critical at tax time. Poor records could cause you to underpay or overpay your taxes. In addition, good records are essential during an Internal Revenue Service audit, if you hope to answer questions accurately and to the satisfaction of the IRS.

  What Exactly Will the Records Tell You?

 The following checklist highlights the type of information your financial records should provide to assure your success:

*  How much income are you generating now, and how much income can you expect to generate in the future?

*  How much cash is tied up in accounts receivable (and thus not available to you), and for how long?

*  How much do you owe for merchandise? Rent? Utilities?     Equipment?

*  What are your expenses, including payroll, payroll taxes, merchandise, advertising, equipment and facilities maintenance, and benefit plans for yourself and employees (such as health insurance, retirement, etc.)?

*  How much cash do you have on hand? How much cash is tied up in inventory? What is your actual working-capital budget?

*  How frequently do you turn over your inventory?

*  Which of your product lines, departments or services are making a profit, which are breaking even, and which are financial drains?

*  What is your gross profit? What is your net profit?

*  How do all of the financial data listed above compare with last year – or last quarter? How do they compare with the projections in your business plan?

*  How do all the financial data compare with those of your competitors? With those of the industry?

  While your review of this checklist may have uncovered some glaring deficiencies, it’s never too late to correct problems related to poor record keeping. It may take a bit of time and effort to ana lyze the company checkbook, take inventory, review bank statements and, in general, catch up on your paperwork.

  It is essential, however, that you make the effort to determine the precise financial condition of your business. It is as critical as maintaining good customer relations.

  What to Look for in an Accountant

  Let’s assume you follow the path of many successful entrepreneurs and seek professional assistance from an accountant. How do you find an accountant who is knowledgeable, capable and discreet? You should seek an individual with high ethical standards who is a respected member of the community.

  Due to the ever-changing complexities of tax laws and developments in accounting methods, the accountant must keep up. Look for an accountant who takes advantage of educational seminars, professional publications and other continuing education opportunities.

  You will probably want your accountant to assist you not only as a record keeper, but also as a consultant and financial advisor who understands your business affairs almost as well as you. Seek out an accountant with broad experience and a well-rounded education.

  Professional accountants are listed in telephone directories under accountants, public accountants, bookkeepers and tax preparers. Look for references or recommendations from local business associates, your banker or attorney.

  The Basic System

  A basic record-keeping system, whether on paper or an off-the-shelf computer software program, should be simple to
use, easy to understand, reliable, accurate, consistent and designed to provide information on a timely basis.
It needs:

*  A basic journal to record transactions (receipts, disbursements, sales, purchases, etc.)

 *  Accounts receivable records

 *  Accounts payable records

 *  Payroll records

 *  Petty cash records

 *  Inventory records

  An accountant can develop the entire system most suitable for your business needs and train you in maintaining these records on a regular basis. These records will form the basis of your financial statements and tax returns.

  Without knowing where your business is financially, you may be forced to close or sell, despite an excellent customer base. You could find yourself in this trap if -

*  your cash flow is desperate.

 *  you are unable to pay creditors.

 *  too much of your cash is tied up in old inventory and accounts receivable. Sure, owning a business places tremendous demands on your time. It’s easy to let things slip. Resolve now to avoid the trap of letting the books wait until you are less busy … or more rested… or have time to start and finish the job all in one sitting… or ….

   Make a pledge now to maintain your records and assure your success!

  For More Information

  Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it.

 Sources of information include:

 U.S. Small Business Administration

 *    SBA District Offices
 *    Small Business Development Centers (SBDCs)
 *    Service Corps of Retired Executives (SCORE)
 *     SBA OnLine (electronic bulletin board)
 *    Business Information Centers (BICs)

  The SBA has offices located throughout the United States. For the one nearest you, look under “U.S. Government” in
 your telephone directory.
 You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk.

  Other Sources

 *  State economic development agencies
 *  Chambers of commerce
 *  Local colleges and universities
 *  Libraries
 *  Manufacturers and suppliers of small business products and services
 *  Small business or industry trade associations

  Did you know the SBA …

*  Has a portfolio guaranteeing over $27 billion in loans to 185,000 small businesses that otherwise would not have had such access to capital?

*  Guaranteed over 60,000 loans totaling $9.9 billion to America’s small businesses in fiscal year 1995?

*  Last year extended management and technical assistance to nearly 1 million small businesses through its 950 Small Business Development Centers and 13,000 Service Corps of Retired Executives volunteers?

*  Provided more than 45,000 loans totaling $1.2 billion to disaster victims for residential, personal property, as well as business losses in fiscal year 1995? Has 7,000 private sector lenders as partners providing their capital to small business?

*  Has increased its venture capital program with more private capital in the past two years than in the previous 15 years combined?

*  Provides loan guarantees and technical assistance to small business exporters through U.S. Export Assistance Centers in 15 cities?

  Did you know that America’s 22 million small businesses …

 *  Employ more than 50 percent of the private workforce,
 *  Generate more than half of the nation’s Gross Domestic Product, and
 *  Are the principal source of new jobs?

  All of the SBA’s programs and services are provided to the public on a nondiscriminatory basis.

 If you’re planning on putting your home on the market, consider fixing it first. Simple cosmetic changes don’t cost very much and they can make a real difference to a buyer.

From Consumer Reports, here are four ways to spruce up your home for a sale:

Take out the stuff.
You should throw out, or at least hide, the clutter. Pick up old newspapers and magazines from the coffee table and put the shoes away in the closet. Don’t let potential buyers become distracted by all your stuff. Homes look better without clutter. They also look more appealing with furniture, so fill any empty rooms you may have.

Polish and clean.
You don’t want to show a dirty house. Mop the floors and scrub the counter tops. Clean kitchen appliances as well. If it’s an older model appliance, a little shine will make it seem newer. If a room needs a fresh coat of paint, then paint it. Try to stay away from bright colors. These might not appeal to every buyer.

Arrange your furniture.
A good furniture layout can change the way a room looks. Try setting up chairs and couches around a focal point such as a fireplace.

Bring in a professional.
Professionals in this arena are called stagers. Their fees can range from $200 for a two-hour consultation up to $5,000 for a full staging. Stagers can also provide any furniture and accessories that may be needed. A good resource to find a stager is the International Association of Home Staging Professionals, at www.iahsp.com.

Borrowers seeking bad credit commercial loans have basically three options.     However none of these options are ideal. They are money loans, commercial hard money loans and SBA 7a Loans And due to the credit crisis these options are becoming more and more limited.  Never before has personal credit been so important for commercial loans. 

This may seem painfully obvious, but worth noting that everything should be done by the borrower to restore/improve their personal credit score.  Commercial loans with bad credit are very expensive and also very hard to get funded in this market.  We are currently in one of the worst credit crisis’s since the Great Depression and banks are getting very conservative.  Credit scores are very easy for banks to identify and “pick on” 

As far as the expense, the difference in payment on a $1,000,000 loan amount  with a rate at 7% (is $7,067) vs 9% (at $8,391) is significant.  That a  $1,324 per month increase, or:

• $15,891 per year increase in payments, or
• $79,497 increase in payments over a 5 year period

Thats real money, cash out of your pocket…  Thats not potential equity build up, or principle paydown, etc but real cash out of your hands.  And this does not include the other costs to do loans.  For example, SBA 7a loans normally have a 2.75% “guarantee fee” which are points the Small Business Administration charges.  On a $1,000,000 loan amount that would be $27,000 in fees you would have to pay.  Hard money is more expensive.  Expect to pay 4-6%, again thats $40,000 – $60,000 in fees just to close the loan.  

Business Loans & Grants

The U.S. Small Business Administration (SBA), the federal agency created specifically to assist and counsel small businesses, suggests the following sources of business capital in addition to :

1. Finance Companies
2. Mortgage Companies
3. Frieds, Relatives, Individuals
4. Government Agencies (such as SBA)
5. Banks
6. State Government Financing Sources
7. Savings and Loan Associations
8. Insurance Companies
9. Small Business Investment Companies
10. Venture Capital Firms
11. Pension Funds
12. Private Foundations

Types of Business Loans

Banks and other financial institutions can assist you by providing business loans through personal or commercial credit. Examples of personal credit include credit cards, and home equity loans. Commercial credit includes business loans; here are some of the options:

Short-term business loans are one of the most common types of business loans and are usually for less than one year. They can provide interim working capital for a business temporarily in need of cash, and are typically repaid in a lump sum when inventory or accounts receivable are converted into cash.

Intermediate-term business loans are often used for a business start-up, the purchase of new equipment, expansion, or an increase in working capital. The maturity dates range from one to three years.

Long-term business loans generally are made for major capital improvements, acquiring fixed assets, or business start-ups. The term of the loan runs for periods of three to five years and is usually based in part on the life of the asset financed. Repayment is usually made in monthly or quarterly installments.

A line of credit offers you the ability to borrow money repeatedly, up to your credit limit, without having to re-apply. A line of credit is particularly important to businesses that experience seasonal fluctuations.

The Business Loan Application Process

Among the best assets you can bring to the lender is a well thought-out and documented business proposal. You need to clearly state the purpose of the loan (will the money be used for temporary working capital, buying equipment, or expanding facilities); the amount of funds needed and for how long; and a repayment schedule. Your business proposal should include the following information:

business description that tells the nature of the business, describes the product and its market, identifies its customers and competition.

personal profile that outlines the background and experience of each of the principals in a resume.

proposal that states the type of loan requested and its purpose.

business plan that outlines your corporate strategy for the next three to five years; it will aid you and the lender in determining whether the business will generate the cash flow needed to repay the loan.

repayment plan that tells how you propose to repay the loan or outlines a repayment schedule. The lender will be expecting you to repay the borrowed funds from the profits produced by the business. As a contingency, you might need to develop a plan on how you would repay the loan if the profits alone turned out to be inadequate.

supporting documentation will include copies of pertinent papers that support the information contained in your loan proposal-for example, a lease, certificate of incorporation, partnership agreement, letters of reference, contracts, invoices or vendor quotes.

collateral that you will use to secure the payment of the loan. Collateral can include business and personal assets such as inventory, equipment, and accounts receivable or real estate, stocks, bonds, and automobiles. Financial statements, both personal and for the business. It should contain a balance sheet showing business assets and liabilities, and a profit-and-loss statement showing revenues and expenses. You should be prepared to provide copies of your personal tax returns. You may be asked for a list of credit references. Lenders will check your personal as well as your business credit rating.

Lenders will carefully examine your financial statements and business projections. As a borrower, you must be fully prepared to answer questions about them.

personal guarantees of the owners or other principals usually are required, even from an established business. The lender also may request another party’s guarantee such as a cosigner or a surety, or may request a government guarantee from the U.S. Small Business Administration or other government agency.

In the case of secured credit, the lender is allowed to obtain a spouse’s or other co-owner’s signature on certain documents when the applicant offers, as security for the loan, property that the two own jointly. In this case, the spouse or other co-owner may be asked to sign documents—such as a mortgage or other security agreement that would be necessary under applicable state law to make the property available to satisfy the debt.

10 THINGS YOU MUST KNOW WHEN SELLING

1.      PRICE YOUR HOME RIGHT

In a buyer’s market, to successfully sell your home, you must price your home competitively based upon its competition.  In other words, you can get an idea of what your home is worth from an appraisal or a CMA(pending and sold comparables in your neighborhood). However, to actually sell your home, you must be at the top of the competition in your price range.  If you or your realtor do not abide by this rule, then you will have a difficult time selling your home.

2.     MAKE YOUR HOME SHOW LIKE IT NEVER HAS BEFORE

If you are planning to show your home in its present condition,  then you are more likely presenting it wrong.  It is hard to make the interior of your home look like a new construction model home, but you should make every attempt to have it resemble one.  Clean your home like you never have before.  Once you have done that, immediately clean it again.  It is so important to have an extremely clean home.  Try and exclude all clutter in your house.  Depersonalize and neutralize your home to tend to all buyers, including putting away a lot of the personal items lying around.

3.     PAY THE CORRECT COMMISSION

In a buyer’s market, the last thing you want to do is start cutting the realtor commissions or using a discount realtor.  This is one of the main reasons a home gets less showings or no showings.  Once that happens, you will probably be dropping your price drastically to get a showing.  You will lose more money than if you just paid the correct commission.  There are enough homes on the market in your price range that realtors tend to only show homes that offer at least 4%.  Please understand that this is one of the biggest mistakes homeowners make to try and save money.

4.     PICK THE SILVANO GROUP  MARKETING PLAN

Some of the most important qualities to look for is the reputation of a brokerage firm.  Also, finding a successful agent with the best marketing plan within that brokerage firm should also be your main concern.  This will ensure you the best chance of selling your home at the price you expect.

5.     SHOWING YOUR HOME

Make sure your home is always clean and ready to show!  Accept every opportunity to show your home no matter what the circumstances are.  Make sure you leave your home at every showing to make the potential buyers more comfortable.

6.     IF YOU HAVE PETS, SMOKE, OR ANY OTHER ODORS FOLLOW THESE STEPS

If your home has an odor because someone has smoked indoors, you must do everything to eliminate the smell.  You may have to clean all the air ducts, spray and/or repaint the entire interior of your home, and possibly replace the carpet.  Obviously it would be a good idea to not smoke in the house during the time your home is on the market.  Most people who smoke themselves do not like to walk into a home and have that smell lingering around.  

Most families have at least one pet.  If you are one of these pet owners, you may be immune to the odors that are actually there.  If you think “not your house” or “not your pet,” you are probably unaware.  When selling your home, you must go out of your way to make sure the home is odor-free and smells clean and refreshing at all times.  You must do everything you can to keep all of their necessities put away and, if at all possible, do not have any pets at the showings.  All pet owners love their animals, but please remember that there are many buyers that are not pet owners and they may be allergic to cats or dogs.  It is to your advantage to attract all potential buyers.  Other odors may include dirty laundry, garbage, and cooking spices.

7.      IMPROVE YOUR CURB APPEAL

Improve your landscaping as much as possible, including the front and back.  Make sure the exterior of the home is clean and there is no debris on the property.  Remember that the front of the home is usually the first picture a buyer may see when choosing what homes to view, so understand the importance of the first impression of your home.

8.      UPDATE YOUR HOME 

Some of the smallest changes make the biggest difference.  These may include replacing the carpet, appliances, floors, countertops, sinks, hardware or repainting the interior or exterior.  Find out what is the most popular at the time and always try to use neutral colors.

9.       KNOW YOUR MARKET AND ADAPT / STAY INFORMED

At least once a month, you need to get an update on the real estate market.  You need to know your competition, so get a report showing homes that are active in your area and in the same price range.  Also, take a look at the homes that have gone pending over the past month.  This way you will know which homes are selling instead of yours.  If prices are falling, you need to know so you can adapt to your competition.  This is one of the most important aspects and often overlooked by realtors and homeowners.

10.     KNOW YOUR PAYOFF AND ESTIMATED NET SHEET

You should  know approximately what you are going to make once you sell your home.  Unwanted surprises and hidden costs that show up at the end of escrow can be devastating and may affect a potential purchase.  Call the company who owns the loan on your home and make sure you do not have a prepayment penalty (ask your realtor if you are unfamiliar with this).  Find out if there are any liens or unpaid child support on the home that must be paid through escrow.  Always make sure your realtor provides you with an estimated net sheet that shows all the costs you incur when selling your home.  Some of these costs consist of escrow fees, realtor fees, closing costs, roof cert estimate, termite inspection estimate, septic certification, home inspection repairs, home warranty, and so forth.  If you get an offer on your home that is not your asking price, always get a new estimated net sheet that will reflect the new price.