hey everybody's can so I get a lot of
questions about how do I look at
packages everyday cuz as you guys know I
get tons and tons of the stuff this
morning just this morning I probably
gotten at least 10 or 12 different
broker packages investor packages sales
packages and so you kind of have to
condense it down so that you know it's
not overwhelming cuz it can be and so
there's some really really basic things
and I've broken it down to three things
that I think you should look at just
like I do each time and I figured rather
than just talk about it I'll just show
you one that I'm looking at right now so
some of you know I currently own a
resort in Sedona Arizona it's beautiful
there and so here's Sedona Arizona and a
friend of mine send me this other resort
and this one is actually an active
listing right now so this came across my
desk this week as you can see it's
absolutely drop-dead gorgeous has a
beautiful Golf Course in the middle has
all these rooms it's a resort and Sedona
is super popular it's really close to
the Grand Canyon
so I'm interested in taking a look at
this for multiple reasons and we'll go
through that in a minute but the very
first thing that I look at every single
time is the the financials and so rather
obvious but the first thing that I want
to look at is the revenue okay just the
first page it shows that the room
revenue for the last 12 months or t12
means trailing 12 as of August 2019 was
basically 4.2 million dollars okay so
that's the actuals okay and so I always
want to see that in any broker package I
want to see actual eschewed on't see
actuals
then you're just working unnecessarily
you really need to see actuals but even
then sometimes you get them and
sometimes they're not right and so but
at least this broker package has the
actuals and I'm guessing that it's
correct because it's it's an odd number
it's four million one hundred ninety
three thousand four hundred thirty
dollars so I'm guessing that I can grab
some financial somewhere and tie back to
that which is what I would do if I was
in due diligence but for now I'm just
trying to compare it as to what the
actuals are but what what's most
interesting and this is what you
in the broker packages they have the
projected so they've got projected 20/20
Argos of 2020 4.7 million and then
August of 2020 to 5.9 million okay so
that you get this so it's running at 4.2
million in room revenue and the package
projects it to 5.9 in just three years
okay so obviously that's okay this is
how packages come in brokers are highly
optimistic as to how these things can
run but that's a big red flag I just
don't know how I'm gonna grow 1.8
million in revenue okay
and I haven't picked up the phone yet so
the other income is another area that
you got a look at okay actuals fight 2.3
projected 2.8 up to 3.3 okay so
basically you got your gross revenue for
this property at 6.5 and they're saying
one year later it should be a million
bucks higher okay so that to me is a
very very big red flag not saying they
can't do it and maybe there's a reason
but my question would be if I could do
it why is it the current ownership doing
it so that's actually the biggest
question and then you look at your
expenses and of course like all broker
packages 6.1 operating expenses but the
projected is 5.8 so they're saying
revenue is going to go up a million and
expenses are going to go down 300,000 so
that's a million three that you could
potentially be off right out of the gate
okay so the net operating income on this
property is two hundred and seven
thousand dollars okay so this is a very
very important point now even with all
of this I'm already basically killing
this deal already because you got two
hundred grand on a resort like that you
got a six point five million in revenue
and you're only making two hundred and
by the way that doesn't include debt so
this is Cassius it's net operating
income so once you put debt on there
it's super negative okay so but I said
why don't why not take a look I'll dig
dig a little deeper because now the
second thing the first is pro forma and
actuals the second thing is
is there any upside because sometimes
you can buy properties like this and
there's significant upside so what some
people call it value add maybe there's
extra land whatever it is so I'm always
looking at that by the way I usually do
this in about two or three minutes okay
and I haven't even picked up the phone
and talk to the broker so the next thing
I'd take a look at would be obviously
some of the details of the resort itself
it's obviously a beautiful property 18
acres in Sedona hard to get 18 acres in
Sedona Sedona is a really really non
build area it's super tight rents are
high there and resort fees are high and
room rates are high and it's a high high
it's a number two tourist destination in
Arizona behind the Grand Canyon it's
basically on the way to the Grand Canyon
and there's no place to stay in the
Grand Canyon so Sedona is kind of it and
so it's a great market for a resort but
for some reason this properties has only
made 200 grand
now it's to 256 parking spaces very
interesting and very good thing to know
it's fee simple and and then it has all
their unit types here but let's just
keep walking through this their floor
plans which are important but not at the
moment
here's your layout this is aerial view
and it kind of shows you what you have
to work with what I really love mostly
is this nine acre Golf Course so I'm
looking at this going maybe I can
develop that and in other words maybe
that can turn into single-family
development you guys have probably been
around long enough to see that sometimes
golf courses turn into that you know a
nine-acre golf course is not a big deal
to really any golfer it's more of a
novelty my guess is it's super expensive
to maintain this thing so but the city
of Sedona may not even allow it so that
could be a problem but then it goes into
the markets and it talks about how great
Sedona is and you know how many tourists
go there every year and all that kind of
stuff and this is all very very
important you know Sedona is beautiful
and
there's a lot of action and a lot of
interesting going up there but it's
mostly a day trip so here's the me
here's the bread and butter of it and
this is where we start to look at return
on investment so this is the detail and
the income and expenses that we saw on
the first page and what we're going to
see here is here's your room revenue
your food your beverage your
miscellaneous resort fees your total
revenue my guess is that these are all
going to tie to actual financials if I
called the broker they would send them
no problem because all that has to tie
here but I just don't see how we're
gonna get from six point five to nine
point three there's nothing in the
package at all that shows how that's
going to happen I mean that's that's
essentially 2.3 million dollars in just
three years just on on income alone and
then the expenses are there all over the
map
you know and they show them going down
and this is a very common thing you know
what they basically do a lot of brokers
is they they blame the management
company or blame the ownership and then
they they say hey the rates are too low
and the expenses are too high that's the
standard thing that everybody says so
but I'm looking at this as a return on
investment so here's what I know
down here and the small print it says
owner HR and accounting wages removed
and travel expenses removed so basically
this 206 thousand dollar or two hundred
seven thousand that I already told you
about it's probably zero once the owner
is taken out there their cash so keep in
mind this this property is what I it's
like it's like a farm you know it's its
land rich and cash poor so it's a
beautiful piece of property obviously
has a beautiful Golf Course it's
obviously very well-maintained it looks
like from the pictures but it may or may
not be there's probably my guess is a
fair amount of deferred maintenance
because if you're running this tight
there's not a lot of money for
maintenance or usually you're cutting
corners a little bit usually there's
reserves and all that kind of stuff but
there's none of
here and so now I'm looking at the third
thing which is the return on investment
so if I was to buy this just for a land
it would be somewhere between eight and
ten million bucks just for the land for
18 acres okay that's kind of the going
price for land up and stood on I'm
actually looking at another twenty two
acre parcel in Sedona right now so
that's generally about what land is the
problem is it's the lands worth more
than the resort on it at the moment
because the owners want to sell it so
they would probably sell it for
somewhere between eight and ten million
because it doesn't make any money but
here's the problem when you went on the
return on investment let's say I'm going
to ask grow with this thing for eight
million dollars okay I have to raise
three or four million dollars from an
investor let's say I have to raise four
million dollars and then I have to go
get a four million dollar loan just to
buy it and that doesn't cover any of the
for maintenance or anything that I might
find okay so now I have to pay some kind
of preferred return on the four million
dollar for the investors so so if the if
I raise four million dollars for an
investor and I'm paying a seven percent
return I owe $280,000 just on the four
million plus the I owe interest on the
four million for the debt that the bank
is mean that's even if they give me a
loan which they probably won't do
because the net operating income is only
two hundred thousand dollars so now I
have a problem I might not be able to
get a loan so now you got a four million
dollar equity that you know two hundred
eighty grand on plus you got a a debt
let's say four million let's say that's
somewhere in the four or five percent
range that's another two three hundred
thousand dollars worth of debt both
principal interest and all that okay so
now just to buy it
you need say four million down plus you
got to cover the the interest on the
equity and the interest on the debt at
another say four five six hundred
thousand dollars a year so this thing
was dead immediately the minute I opened
it in the minute I read through it
because it basically is a zero cash flow
deal it's beautiful but all the money
to run the property is is spent on what
they make so basically the income covers
the expenses and there's no money left
over and so this property is gonna be on
the market for a long long time because
this property is this owner cannot sell
it this way you can't sell a property
that has a $200,000 NY and and you
backed into that just by by showing that
the others didn't take any money out so
but the brokers are marketing it as you
guys can see over here at a 2.2 million
dollar and why so this is always the
game it's not unusual at all it's
something I see every single package but
the best thing you can do is one get the
pro forma and the actuals like you saw
here see if there's any upside and there
still might be maybe maybe it's a home
building play you know on the golf
course but I doubt it because the city
of Sedona is super tough but also from a
return on investment which is ultimately
if you're taking money from your your
own money or investor money this thing
does not produce a return to be able to
pay any kind of ROI or return on
investment for the investor itself so I
hope you guys enjoyed this this took me
about less than five minutes to review
and I hope you learned something