| Overview I ran into a deal once where when asked | | | | Transfer and Recording Taxes or Other Local |
| for expenses, the seller's response was, "If you don't | | | | Equivalent |
| understand your expenses to operate this deal, you | | | | Initial Insurance Payment |
| shouldn't buy it." | | | | Initial Utilities Set Up |
| While this perspective has issues, the purchaser must | | | | Initial Operating Reserve |
| understand their own cost to operate an investment. | | | | Improvements Bid Management |
| Methodically, consistently, and accurately determining | | | | Property Records Review |
| the cost to operate and also the cost to acquire an | | | | Lease Review and Rent Roll Analysis |
| investment is a critical investment process. | | | | Expense, Bank Record, and Check Register Analysis |
| Purpose · Define each key expense & capital cost | | | | Operating Expense and Cost Checklist Lenders and |
| area that a properly planned and executed | | | | buyers always want to see the historic expenses. |
| investment will require. | | | | While a prudent step, lenders and buyers often take |
| · Provide guidance assisting a well executed analysis. | | | | the historical expenses as gospel. As investors, |
| · Offer checks and balances to prevent misuse of | | | | avoiding this assumption is critical to avoid major |
| the checklists and guides provided. | | | | missteps that can cause a failed or poorly performing |
| Limitations First, the investor should avoid considering | | | | investment. |
| this checklist the total set of actions for a project. | | | | Next, lenders rely on the Property Condition Report |
| Individual projects have individual needs. Varying | | | | to determine reserves. Often investors, hope or |
| jurisdictions have differing requirements for transfer | | | | seek that the improvement reserve described will |
| taxes, permitting, occupancy rights, and more. | | | | come in low thus reducing the closing capital reserve |
| Overcoming Limitations Review your cost elements | | | | requirements. |
| with experienced investors, lenders, appraisers, legal | | | | Accurate and adequate capital reserves serve |
| counsel, accountants, and property managers. | | | | investors best. Further, if the investor can show the |
| Review other project offerings and transactions. | | | | actual cost for PCR requirements, justification for a |
| Review tax returns for similar projects. | | | | lower reserve legitimately exists. |
| Recognize that with all of this, as the investor you | | | | Operating Expense Checklist |
| must take direct responsibility to verify your | | | | Taxes |
| understanding, assumptions, bids, and agreements for | | | | Insurance including fire, wind, flooding weather, |
| suitability and deliverability at the costs offered. | | | | workman's comp, umbrella liability, and others as |
| Project Acquisition Capital Needs and Cost Checklists | | | | needed |
| Acquisition Capital Costs and Expense Checklist | | | | Landscaping and Grounds |
| Regardless of jurisdiction, country, state, province, | | | | Utilities |
| the following list deserves serious attention. The local | | | | Trash Removal |
| equivalent steps may be somewhat different; | | | | Payroll |
| however, this list if followed in principle will assist | | | | Locks and keys |
| avoiding an investment error, may increase long term | | | | Cleaning |
| return opportunity, and provides a mechanism for risk | | | | Exterminating |
| mitigating plans. | | | | Management Fee |
| Letter of Intent | | | | Vehicles |
| Sales Contract | | | | Furniture |
| Operating Agreement | | | | Swimming Pool |
| Offering and/or Business Plan | | | | Office Supplies & expense |
| Subscription | | | | Postage |
| Lien Search | | | | Bank Charges |
| Background Search | | | | Credit and Background Checks |
| Title Search | | | | Marketing, Advertising and Promotion |
| Title Insurance | | | | Resident Relations |
| Appraisal | | | | Lease commissions |
| Survey | | | | Education |
| Phase I Environmental (Phase II if significant finding | | | | Legal |
| occur on Phase I) | | | | Accounting |
| Property Condition Report (for commercial | | | | Licenses |
| properties) or Property Inspection (or for 1-4 unit | | | | Repairs and Maintenance:o Groundso Buildingso Unito |
| home purchases - house inspection, termite | | | | Common Areao Amenitieso Office / Clubhouse |
| inspection, radon inspection or local equivalents) | | | | Debt Costso Interesto Principal |
| Investors physical inspection, site and market review | | | | Summary Investor should account for or positively |
| Market Study | | | | eliminate the items described here. |
| Lender's Counsel | | | | Investors should not assume that this checklist |
| Lenders Application Fee | | | | includes everything for any given property. However, |
| Loan Origination Points | | | | using this checklist will go far toward avoiding any |
| Mortgage Insurance | | | | oversights during the planning and due diligence. |
| Purchaser's Counsel | | | | |