Investing in real estate is an excellent way to diversify your portfolio but it can also be very complex.
Acquiring a property already being leased by existing tenants can make it even more complex. To effectively assess risks and the likelihood that your income stream will continue, we recommend our Acquisition Due Diligence Report.
There are a number of reasons that a tenant can become delinquent. Some of these situations cannot be predicted, such as industry conditions that negatively impact the business or growth that is too rapid. However, there are signals of potential delinquency that can be revealed during the initial and renewal application process.
Gathering thorough background information prior to engaging with a business or individuals, whether it is a prospective client, supplier, tenant, franchisee, dealer/operator, or other potential business partners, can help you make better decisions.
The accumulated information will tell you whether they are a quality candidate, whether they will be able to fulfill the necessary requirements and obligations and, most importantly, whether or not you should work with them.
To collect this information, you must first have these potential business partners fill out a credit application.
The current real estate market has brought more people and businesses into the property management sector to take advantage of the up-side of the investment. But like all investments, you need to be prepared and ready to mitigate any risks, liabilities, and consequences.
One of the best ways to mitigate these risks and protect your investment is to ensure you have chosen the best tenant for your listing at the outset, using an in-depth commercial credit report.
This complimentary eBook was created to help you uncover the benefits of in-depth tenant screening in the property management industry, whether you are screening potential tenants, renewing a lease, acquiring rental property, or engaging with a delinquent tenant.
Failing to effectively screen a potential business partner can have adverse effects on your company. Not only does it increase risks, it can also reduce productivity, increase lead times, negatively affect cash flow and increase costs. It could even affect your brand image.
That is why, when getting ready to work with a new business (or individual), it is important that you screen them thoroughly.
While all of the information provided in a commercial credit report is important to the decision making process, there are specific areas that require special attention, when reviewing a commercial credit report.
One area in particular is the corporate structure and profile. By ensuring you understand the content presented as part of the corporate profile, you can ensure you identify the critical information.
There are 5 main areas of the corporate profile that you will want to seriously consider.
Purchasing Commercial property can be expensive and risky. Due Diligence typically includes surveys, engineering and environmental reports, zoning compliance and or topographical studies. This due diligence deals with the property itself, but don’t overlook the tenants that occupy the building.
Adding a Quality Credit Acquisition Report to the due diligence process removes the uncertainty from decisions made to analyze the cost benefit of an acquisition. It will help assess the risk as well as the likelihood of the future income stream from the property. Gauging the underlying quality of the existing tenant base is key.
Even if the seller has proof that the tenants have been reliable to date, there are often developing financial issues to consider. It is very important to ensure that the correct, current, full legal names are on the lease. The reports can be produced without the consent or knowledge of the property’s current tenant base.
Before acquiring commercial property, you want to assess risk by looking at the following areas.
Commercial Credit Reports are a great tool for screening businesses, but they are also valuable when looking into individuals that you want to work with, such as:
Imagine a potential dealer comes to you indicating that they are quickly growing and are interested in floorplan financing.
After some negotiation, you enter into a dealership agreement in which your company will maintain ownership of the inventory and the dealer will accrue 18% interest on the financing until the inventory is paid in full. You also require them to submit an online warranty for registration within seven days of each sale.
A deal is struck.
A few years later, you’re filing a claim against the dealer for $2.5 million in damages, plus interest owed.
Seems unimaginable, but this is exactly what happened to luxury power and sail manufacturer, Beneteau America.
Property owners don’t often default on mortgages, but when they do, you need to know which method of recovery will offer the greatest return.
There are four common remedies that are used if a mortgage goes into default.
A power of sale (POS) is the most common remedy when enforcing a mortgage. A POS often exists within the mortgage contract and allows the lender to sell the property and use the proceeds to pay any arrears.
When a POS is the chosen remedy, the mortgagor remains on the land title until the property is sold, any losses incurred from the sale are at the owner’s expense and if there is any extra money, after creditors have been paid, the owner is entitled to it.
If there is a deficiency, the mortgagee must collect from the mortgagor.
Commercial and Business Credit Reports are a valuable asset for many industries, including property management, automotive, franchising, legal, insurance and banking. But the value that credit reports offer businesses does not solely exist for these industries.
