Lending institutions today have become extremely conservative and extraordinarily cautious. These institutions are nearly unified in their need to have a thorough understanding of your facility operating procedures so that they can attain the confidence they require to make an important financial decision.
Make sure you can demonstrate to investors and lenders that you have a sound accounting system; do not wait until you have made the decision to sell to implement your financial controls. An investor must be convinced that the financial accounting you are presenting adequately represents the financial condition of your property. Otherwise, that investor will be likely to either pass on your opportunity, offer less than he might be willing to pay, or be unsuccessful in obtaining the necessary financing to make the acquisition.
The rationale of presenting a true picture of your financial operations is not limited to being fair to a potential buyer; it also needs to be fair to you as a seller. When making expenditures on your property, be careful to distinguish between operating and capital expenses. An operating expense is any amount paid to maintain your facility or any cost of doing business. A capital expense is typically an investment in the property that increases value and is not routine in nature.
Examples of a capital expense would be adding landscaping or putting on a new roof, as opposed to operating expenses which are lawn care or minor roof repair. In establishing your accounting procedures, take care to distinguish between these categories of expenses. If an owner fails to make such a distinction, he could penalize himself by overstating actual expenses, which would lead to a diminished valuation.
Allow for Time
Loans today take longer to obtain and lenders require more assurance about the continued performance of your property. A portfolio of data and information on your property can be readily integrated into a loan package and is invaluable in creating the certainty in your property that your prospective buyers will need to obtain their loan and close the sale on your property. Here is a short checklist of the information a buyer will need:
- Facility acquisition document list
- Full-size site plan
- Building plans, land-use approvals and building permits
- Loan documents and previous title report
- Property tax bill for the last two years
- Sample copy of a lease
- Insurance policies
- One year of utility bills
- All service contracts (Yellow Pages, trash, snow, pest and landscape)
- List of any personal property included in the sale
- Rent roll: unit sizes, numbers, rental rates, move-in dates, rate increases with dates
- List of delinquencies and aging report
- Monthly occupancy and income report for past two years