Cash Flow - Commercial

I read and hear scenario’s all the time stating that the property IS cash flowing, just to discover after getting together all the correct docs that its not at all. You can’t take anyones word for it. The realtor, seller, buyer…nobody, the Lender won’t do it and nor should you. Knowing if the property truly cash flows helps determine what type and which Lender to go to. Many times you are told the property cash flows but someone has forgotten to figure this in with the new mortgage payment that is being sought. This is a good quick measurement. The main items you need to see true cash flow is a rent roll, a recent P&L. These will show the expenses and money made. Once these are all figured in an equation you can get the DSCR ( cash flow ) of the property. Many lenders require this number to be at a specific ratio to even do the loan at all. So getting these docs should be your first priority. You may have a loan that nobody can fund because the cash flow is so bad. These docs are what you want to get to help yourself weed in and out the would be and should be Commercial deals on your desk. Keep in mind not all deals are doable, especially in Commercial. If a property doesn’t cash flow there is nothing you can do. Q * You may be thinking “Can’t the owner just “fix” the P&L/Rent Roll to show less expenses?” A - The Owner can do that, but the P&L & Rent Roll is also recorded in the borrowers tax returns by a CPA. Also as an appraiser reviews comps they will see market rents in the area. The appraiser will see through recorded docs what a property similar to the one you are working on has as rents and Losses. So there is no real loop hole here.