| When you purchase a commercial property and | | | | property Taxes. This money is dedicated to |
| leave the Closing Table, you will take with you | | | | paying the taxes when they are due - and if you |
| several different piles of cash you don't see in a | | | | spend it instead - or use it for ANY other |
| Residential Real Estate Purchase. | | | | purpose, you have just stolen from the property. |
| They come in the form of | | | | EXAMPLE #2: |
| - Tenant Security Deposits | | | | If you buy the property in the middle of the |
| - Pro-rations | | | | month and the Seller has already collected the |
| - Credits | | | | rent you will get a prorated share of the rent |
| And in a larger property, these can easily total | | | | collected. In this case, 1/2 of it. This money has |
| hundreds of thousands of dollars. | | | | been generated this month to pay next month's |
| WARNING: | | | | bills, leave it set aside in your operational account |
| We know of other commercial property | | | | for use when the bills come due. |
| Educators who advise you take this money at | | | | If you siphon off any of these funds for yourself |
| the close and use it to purchase additional | | | | or other investments, you are setting yourself up |
| property. They crow about "Cash Back at the | | | | to run short of operational cash very quickly. |
| Close" as a major reason to move up to | | | | When this occurs your only recourse will be to |
| commercial property. | | | | ask your investors for more money, this is called |
| We strongly disagree - and absolutely discourage | | | | a Capital Call. AND there is nothing worse for your |
| you from taking cash out of ANY commercial | | | | reputation as a Project Sponsor than a quick |
| property at the Close! | | | | Capital Call. |
| That is because all of this Money has a dedicated | | | | We recommend you open three bank accounts |
| purpose. | | | | when you take over ownership |
| If you use this money for anything other than its | | | | 1) Operations Account - For the monthly in and |
| intended purpose in this property - you are literally | | | | out of income and expenses |
| Stealing it from the property and your Investors. | | | | 2) Security Deposit Account - Best if it is interest |
| Taking this money can and will sabotage the | | | | bearing. Transfer all Security Deposits directly into |
| success of your investment. | | | | this account. |
| Always use this cash wisely and Only for its | | | | 3) Reserves Account - Always keep your |
| intended purposes. | | | | reserve account topped up (we recommend at |
| Tenant Security Deposits - | | | | least one month of operating expenses). This is |
| Are to be returned to the Tenants when they | | | | your rainy day fund and can be an interest |
| move out. Set up an interest bearing account for | | | | bearing account as well. |
| them and transfer the appropriate amount of | | | | We recommend you raise enough money from |
| money directly from the closing table. This cash is | | | | investors to fill the Reserve Account at the Close |
| spoken for. | | | | of your Purchase. This way you will not need to |
| Pro-rations and Credits - | | | | make a Capital Call if the furnace goes out in the |
| Are money already set aside for operational | | | | first 6 months of your ownership. |
| expenses and need to be kept off to the side | | | | With these accounts set up, simply transfer all |
| until these expenses are actually due. | | | | Closing Table funds into the appropriate account. |
| EXAMPLE #1: | | | | AND whatever you do, don't steal from your |
| If you buy the property on July 1st you will | | | | own property! |
| receive a credit from the Seller for 1/2 the year's | | | | |