Manny Khoshbin's Contrarian PlayBook Quotes

“The third way you can incentivize the seller to accept your initial offer is by offering a sizable nonrefundable deposit. You can offer this after your short due diligence expires, or after you are certain your loan will be approved. Again, this indicates that you are serious about the property and that you fully intend to make the deal happen. A nonrefundable deposit is a layer of protection for the seller, and the fact that you are offering it up front demonstrates good faith on your part. This makes you a very attractive buyer.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“Auctions are also to be avoided, both because you will be competing against a larger number of potential buyers and because you will be making decisions in an accelerated time frame, which makes it difficult to do your due diligence. When it’s a good time to buy there will be an abundance of discounted properties to be found, so you won’t need to rely on auctions.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“but no matter what, don’t sell off property at a loss.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“you will want to have cash reserves at all times–so never invest all of your money.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“Note that because I had already negotiated substantial discounts on this already discounted property, I did not have to make totalitarian demands. Instead, I could afford to meet the seller in the middle.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“In drafting your revised offer, you must remember to be reasonable with the seller.  Keep in mind that you both have the same objective, which is to close the deal and close it quickly.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“Be prepared to offer an additional nonrefundable deposit in exchange for the price reduction.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“Any loss of income that you can calculate from the current financials can be used as a basis for further price reduction. For example, if you calculate a decrease in income of $50,000 per year, and project that forward at an 8 percent cap rate, this forms the basis for a request for a $400,000 price reduction. Even if you don’t get the price reduction you ask for, you can make the case for some sort of concession from the seller. Based on all of these calculations, you will now know for sure if you have found a diamond in the rough. The next step is to take all of your findings from the various aspects of the due diligence process, and use them to calculate your revised offer.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“but for most discounted properties you would use an 8-10 percent cap rate.)”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“By subtracting your practical operating expenses from the gross revenue at 90 percent occupancy and market rate, you arrive at the potential NOI, also referred to as pro forma numbers. The potential NOI projects the increase in revenues that you can reasonably expect in the future.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“how much you would be making if the building were 100 percent occupied. Then, knock 10 percent off this figure in order to arrive at the gross revenue based on a 90 percent occupancy rate, which is a more realistic number to project. Adjust the rent per foot to market rate, if the current rate is below market.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“Because my investment strategy involves existing buildings vs. new construction, TI are normally restricted to new carpet and paint, so I budget about $2 per square foot for lease renewals, and $10 per square foot for new leases. (Note: While I budget $10 per square foot for TI on most commercial properties, for retail spaces I budget $20 per square foot.)”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“as tenant leases will typically cost you to renew, especially in a tenants’ market. Typically, lease renewals on office buildings will cost you 3 percent commission for the entire term of the lease (as opposed to residential lease renewals, which normally cost nothing).”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“Keep in mind that you will always have other costs that are not considered part of your operating expenses, such as leasing commissions, tenant improvements, and capital improvements, which are all usually amortized over a period of years but directly affect your cash flow. You should consult your tax advisor on these expenses.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“Keep in mind that you will always have other costs that are not considered part of your operating expenses, such as leasing commissions, tenant improvements, and capital improvements, which are all usually amortized over a period of years but directly affect your cash flow.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“your Before-Tax Cash Flow (BTCF), which is your NOI less the debt service on your mortgage. Use this to determine your cash on cash return.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“The cap rate indicates what your rate of return would be on this property, given the practical/market expenses and assuming you paid all cash.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“As you learned in Play #7, you will then divide the NOI by the sales price in order to arrive at an actual cap rate.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“If you find out that a tenant is going to be leaving, you can back that rent out and annualize it, then use it to negotiate a lower price.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“How do you like leasing at this building? Are there any issues that you would like to discuss? If and when we close escrow, is there anything we can do to improve your stay here? How is business? Would you say your company’s finances are improving? Are your company’s finances weaker or stabilized over the past two years? When your lease expires in ______, will you be renewing? _______________ Don’t expect to be able to interview every tenant; for commercial properties you should focus on interviewing the major tenants, the ones that comprise the largest percentages of the property’s rent/lease revenues. Also prioritize interviews with tenants who are coming up for renewal in the next six months. In addition to any property issues (such as elevator problems or a disruptive tenant in the building) that you might discover in these interviews, you will be looking for anything that is at odds with what you know to be the projected tenant rollover.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“The second major component of due diligence is the performance of tenant interviews. By this point, you know that the property fits the tenant occupancy and tenant rollover criteria. Interviewing the tenants will provide you with the opportunity to confirm the projected tenant rollover and potentially uncover building issues that the inspections may not have identified.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“In order to arrive at the deferred maintenance costs, you will need to get contractor estimates for the work that needs to be done on the property. When you submit your revised offer, the inspection report and contractor estimates will be included.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“As the deferred maintenance issues rise, you, the buyer, have increasing leverage to negotiate further discounts.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“The inspector will examine the property for code violations, such as ADA, fire and safety. This will potentially include code issues that were previously grandfathered in but will need to be fixed moving forward. The inspector should be able to tell you the number of years remaining on the roof and give you a status report on the heating and cooling systems, as well as the condition of the plumbing, electrical wiring, foundation, and other key structural elements. In addition, make sure your inspector looks for asbestos and mold, which are both considered health hazards and can be expensive to address. If your inspector recommends a specialist to deal with the asbestos or mold, make sure to follow through on the recommendation.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“The three key components of due diligence are property inspections (including ALTA surveys and other reports), tenant interviews, and the collection and analysis of the seller’s current financials.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“As I said in Play #3, a real estate attorney is not required for smaller residential deals, as you can rely on the title company to alert you of any red flags during escrow, such as substandard or contractor liens.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“When I bought my first two apartment buildings in Long Beach, I made over thirty-five offers before those two were accepted! This is an extreme example, but illustrates the importance of casting a broad net when it comes to writing offers.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“Once you have calculated your initial offer, draft your LOI. The primary purpose of the LOI is to communicate your intentions to the seller, which you will do in the first few lines. Next you will detail the terms and conditions of your offer. Near the end you should include a clause that designates the document as non-legally binding.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“If you are ready to go with a lender-approved loan application for the property, you will still have the ability to offer the seller a shortened escrow and due diligence period, which is often the greatest incentive of all.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook

“In this particular deal, I offered the seller all three of the incentives we just reviewed.”
― Manny Khoshbin, Manny Khoshbin's Contrarian PlayBook