Commercial Real Estate Financing

Commercial Real Estate Funding System

This online course teaches you more than anything you will ever learn about real estate Brought to you by master real estate guru Austin Davis. Austin has created a system to help you learn everything that you need to know about buying and selling real estate. A few years ago it was not a good time to let too many people in on the secrets of truly mastering real estate, but in today's economy this is the best time in history to be getting a whole lot done in the real estate market. This system has been carefully used and tested by Austin's private clients, and now it is available as an online course to you! You can learn everything that you need in order to start buying and selling amazing real estate, in just a few weeks. Get started now to get in on the secrets of this lucrative market! More here...

Commercial Real Estate Funding System Summary

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Just Imagine Commercial Real Estate and

Discovering commercial real estate Knowing what to consider as you get started Finding the ultimate investment Risk-proofing your investment plan Can you imagine yourself in the world of commercial real estate investing Imagine yourself walking through the lobby of your 100-unit apartment complex. What would it look like and feel like to be pulling into the parking lot of a neighborhood shopping center that's all yours Maybe you can imagine that you're watching your construction crew break ground on your luxury home land development project. What if this project leads to a life where you can live a life of luxury and balance You'd be able to do things such as drive your kids or grandkids to school every day, maybe even in your pajamas, with a big smile on your face because you've invested wisely. Okay, here's one more scenario that may get you excited Imagine yourself impacting the lives of hundreds or thousands of kids here and around the world who benefit from your charities, all...

What Is Commercial Real Estate

Commercial real estate is many things. It's office buildings, apartment complexes, shopping centers, warehouses, industrial parks, hotels, motels, resorts, and the list goes on and on. It's where businesses are conducted and where many people live together. Commercial real estate is everywhere. (Jump to Chapter 2 for a journey through all the different types of commercial real estate that are available.) Commercial real estate is also a means of building long-lasting wealth for the investor. To us, long-lasting wealth is an investment that pays you every month. It's also one in which the value increases every year. Compare this to other types of investments that may allow you to draw a monthly payment, but the balance goes down year by year until the pot's empty. Sound familiar That's not true wealth at all. In this book, we show you how commercial real estate has the ability to generate sizable cash flow every month as well as increase in value every year (and to be tax free ). We...

Understanding the Risks of Commercial Real Estate

Is commercial real estate risky You bet it is. One of our mentors always said, Anything you go after of great worth has great risk. Commercial real estate investing involves big dollars and lots of people. And whenever you have lots of money and people working together closely, trouble is right around the corner. But risk is a facet of doing business any business. You can't avoid it. The best thing you can do to protect yourself is to understand all the risks that are possible, and then get your advisors involved to help you figure out how to avoid them. Don't skimp on getting the best advisors you can hire either. As the saying goes, It's expensive being cheap. But here's the good news Risks can be managed to levels of great certainty. Being successful in commercial real estate nearly always means taking calculated risks. Are you willing to risk some of your time and money to be financially free What if you could secure your family's financial future There are risks with everything...

How Is Commercial Real Estate Different from Residential Real Estate

Here's our definition of commercial real estate It's any piece of real estate that's bigger than one house on one lot. So, commercial real estate includes everything from small apartment buildings (five or more units) and large office buildings to shopping centers, to industrial parks, and even land development. The three biggest differences between commercial real estate and residential real estate include the following i Commercial real estate projects are passive investments only after they're up and running. Remember that unless you have a ton of money and don't care about getting huge returns, commercial real estate will take a lot of your time and effort to get started. After all, you have to deal with many things, including the learning process, finding the right mentors or teachers, searching for the right deal, financing your investment, picking management teams, protecting it from lawsuits, and overseeing the project. i Commercial real estate has the potential to make you...

Why Invest in Commercial Real Estate

We think commercial real estate investing is a great way to generate wealth, and the main reason we like it so much can be boiled down to one word leverage. Leverage is what allows you to use a small amount of your time and money to bring you a magnified return. Commercial properties are usually bigger and more valuable than other types of real estate, such as houses. What this means to you is that after you figure out how to find, negotiate, and buy commercial property without using much of your own money, you'll be able to sit back and watch the magic of leverage work wonders for your financial future. Your family will thank you for generations to come. Understand that there are still going to be naysayers out there who say you can't invest in commercial real estate in today's market, in today's economy, or in today's cosmic layering of celestial occurrences. But you have a choice. You can either buy into what these financially stressed-out individuals are desperately clinging to,...

Myths and Questions about Investing in Commercial Real Estate

Like any complicated business, commercial real estate investing has its share of myths and questions. Knowing this information brings forth some valuable truths that will rescue you from the trappings of confusion. The following are some pretty common misconceptions about investing in commercial real estate i You must start off in residential real estate to get into commercial real estate. There's no rule, rhyme, or reason stating that you must first invest in residential real estate in order to make the leap into commercial real estate investing. These fields are two different animals, two different languages, and two different consumers. It's like comparing apples to oranges. i Only the rich need apply. As you can probably imagine, this myth is just that a myth. It isn't true that you have to be rich to get involved with commercial real estate investing. You can be as creative in your financing here as you can be when investing in homes. i This game is only for big-time players. In...

Evaluating Commercial Real Estate

There's a myth going around town that you need to be an accountant with an Ivy League degree to evaluate and analyze office buildings, retail centers, and apartment complexes. Don't believe the hype. If you can count and do some basic math, you'll have no problem figuring out what your cash flow and return on investment are for any piece of commercial property. In fact, we guarantee that after you read this chapter and follow along with the examples, you'll be able to figure out what a commercial property is worth just like those sophisticated investor guys you see with their pocket protectors and fancy spreadsheets.

Considering Commercial Real Estate

Commercial real estate is a generic term that includes properties used for office, retail, and industrial purposes. You can also include self-storage and hospitality (hotels and motels) properties in this category. If you're a knowledgeable real estate investor and you like a challenge, you need to know two good reasons to invest in commercial real estate You can use some of the space if you own your own small business. Just as it's generally more cost-effective to own your home rather than rent over the years, so it is with commercial real estate if and this is a big if you buy at a reasonably good time and hold the property for many years. We want to be clear, though, that commercial real estate isn't our first recommendation, especially for inexperienced investors. Residential real estate is generally far easier to understand and also usually carries lower investment and tenant risks. With commercial real estate, when tenants move out, new tenants nearly always require extensive...

Internet sites of commercial real estate

A number of good Web sites can lead you to potential commercial real estate deals. The most well known is www.loopnet.com, which is sort of a multiple listing service for commercial real estate properties. Another well-known online resource is CoStar.com (www.costar.com). Or, why not go direct to the source national commercial real estate brokerage firms. They have their own Web sites with listings and valuable market reports. The beauty of Internet sites is that if the property that we find there is no longer available, we count it as all good because we have just made a valuable contact. We can either sign up for property availability alerts or we keep in touch with the realtor we made contact with. In many cases, we found that the property we checked on was no longer available, but we ended up buying another property that was soon to be listed.

Do closing costs differ in commercial real estate

Folks always want to know whether closing costs are an issue in commercial real estate (just as they are in residential real estate). The quick answer is yes. And there are two main reasons for this 1 Typically, commercial real estate deals are bigger than residential single-family deals. The fees that are calculated based on the size of the deal, such as title insurance, are larger in scale.

Accounting for common area maintenance charges for commercial buildings

Costs in multitenant commercial buildings that are passed on to the tenant are called common area maintenance charges or CAM charges. Paid proportionately by each tenant for the upkeep of areas designated for the use and benefit of all tenants, CAM charges include items such as parking lot maintenance, security, snow removal, and common area utilities. These charges are part of the tenant's rent and can be due in advance or paid in arrears the lease establishes the terms. Some tenants negotiate that they don't have CAM charges. For accounting purposes, CAM charges are typically reflected in the cash flow as CAM reimbursement (see Table 12-1). Although they're indicated as an income item, they're essentially offsetting the corresponding expense items included in the operating expenses for the property.

Im the Boss Managing Your Commercial Property Yourself

You want to manage your own commercial properties do you Well, here's a little secret about making nice profits, growing your real estate business, and making smart investment decisions It's not about the property. That's right, being successful in managing your own property has little to do with the

Leaping into a Commercial Real Estate Career

Helping others buy and sell commercial property Managing commercial property as a career Lending money to commercial real estate investors Appraising commercial property Entrepreneurs live a life of action and risk and can be rewarded handsomely for it. A good portion of us who make a living in the commercial real estate business have been afforded great lifestyles because of the risk we took at some point in our lives. We invite you to do the same. Leaping into a commercial real estate career is exciting because you can venture into so many different areas. It doesn't matter your personality type, background, and most times, even your education. It's a wide-open field of opportunity. Of all the successful people we know and work with in commercial real estate, we see three success traits in every one of them integrity, perseverance, and understanding the value of relationships. In this chapter, we discuss the many career choices in commercial real estate, from starting out as a...

Four myths of commercial real estate sales

Here are a few misconceptions about selling commercial real estate 1 Residential real estate sales is a steppingstone to commercial real estate sales. You have two different products and two different consumers. Focus on one or the other. You can compare this myth to a salesperson who believes she must know how to sell U.S.-made passenger cars before she can sell high-end European sports cars. But really, it just doesn't matter. A salesperson is a salesperson, period. 1 Commercial real estate is too complicated. Commercial real estate isn't more complicated than residential you just have to know different information. Consider the U.S. car and European car example. Finding out about U.S. cars takes the same effort as finding out about European cars. The content is very different, however. Commercial sales agents fall under the same licensing requirements as residential sales agents. In most states, any sales agent, commercial or residential, must work under a real estate broker. But...

Four truths of commercial real estate sales

Here are some surprising and also tough truths about commercial real estate 1 You can make a great living from commercial real estate sales. How 1 Commercial real estate sales is all about the relationship. Bart, a good friend of ours, loves commercial real estate sales and makes several million dollars per year in commissions. His success comes from putting the relationship and his clients' success before any commissions. We have personally watched him walk away from commissions to maintain his integrity and the relationship with the client. Bart clearly sees his clients as his lifelines to wealth. 1 Commercial real estate sales isn't for the fainthearted. This is a tough business that's highly competitive with very driven people. Things move fast. Decisions are made quickly, impersonally, and seemingly without much time to think them through. If you take failure or rejection personally, this business isn't for you. 1 No single commercial real estate brokerage firm dominates the U.S....

For Office Building Owners Get Involved with BOMA

The Building Owners and Managers Association (BOMA), which is more than a century old, is a huge network of professionals who take part in owning, managing, leasing, and developing office buildings, medical office buildings, and corporate facilities. BOMA states that current members collectively own or manage more than 9 billion square feet of office space, which represents more than 80 percent of the prime office space in North America. In addition, it reports 80 percent of its members have annual budgets over 1 million. With those figures, BOMA seems to be the place to go to get important information concerning office buildings as well as to network with the insiders. For more info, check out www.boma.org. BOMA is the nation's largest and most influential lobbyist for office building legislation. It sets the industry standard for operations and reporting by producing research documents. Every year, it hosts the North American Real Estate Congress and Trade Show, which is the...

Timing the Commercial Real Estate Market

Wouldn't it be great if you could time the commercial real estate market precisely For instance, what if you could predict what the office building market would do five years from now in your town Imagine if you had a process and procedure for knowing the perfect time to buy in a certain market. Well, here's a secret None of this exists. Sorry for bursting your bubble But if we could predict such things, we'd be living on our own islands off of Tahiti.

Getting to Know Commercial Real Estate Investing

This part is where you might just fall in love with commercial real estate investing. Understanding what types of property make up commercial real estate and getting past some of the biggest myths about it will provide a strong foundation that you can use to support all the other in-depth information you get in this book. In this part, you also discover just how simple it is to quickly determine the value of any commercial property. After you understand this formula, you'll be able to confidently hold your own while negotiating your way to your newfound fortune.

Can I make money at commercial real estate investing

This is one question that we have a definitive answer for Yes We know that you can make money investing in commercial real estate for three reasons 1 We are blessed to be surrounded by our Commercial Mentoring Program students who for the most part have started with little or no experience in commercial real estate. Every time a Mentorship student gets another deal they prove that it really is possible. 1 If you look at the most successful investors out there you'll find that they all have a pattern in common They've typically started out by investing in homes, running a business, or working in a fairly well-paying profession. The next step is to begin investing in smaller commercial properties such as apartment buildings. At some point the successful investors all move up to either big commercial deals or land development. If he can make it starting out where he did as an introverted engineer, and now he's buying commercial properties worth millions, you certainly can too. You see,...

Crash Course in Commercial Real Estate Investing

Understanding the basics of commercial real estate Surveying the types of investments available Discovering the tools you need to get started Debunking the myths of investing in commercial real estate Keeping timing in mind when selling, buying, and holding hat comes to mind when you think of commercial real estate Downtown skyscrapers Corner strip malls Apartment complexes Okay, that's a good start. But have you thought about being the owner of one Too complex you say Too expensive you think Jumping into commercial real estate investing could be the wisest and most lucrative investment you ever make. To us, the benefits outweigh the risks. But find out for yourself. In this chapter, you find out what commercial real estate is, and you discover the different types available. We break down the big world of commercial investing into easy-to-follow categories so that you can pick and choose your favorites. We also uncover the five biggest myths that stop people from investing and...

Commercial Property

Commercial property here refers to strip centers, office buildings, and commercial warehouses. Commercial property is more difficult to finance than residential property. Commercial property often requires time to find another tenant that suits the space. This means that you have to be willing to pay the note or pay the costs, taxes, and insurance while the space becomes rented and retooled for a new tenant. Commercial property stays empty longer than residential property when the economy is down.

How This Book Is Different

Detached and attached condominiums small apartments including duplexes, triplexes, and multiple-family residential properties up to 20 to 30 units commercial properties, including office, industrial, and retail and raw (undeveloped) land. We also cover indirect real estate investments such as real estate investment trusts (REITs) that you can purchase through the major stock exchanges or a real estate mutual fund.

Funding Your Deals Financing and Lending

Okay, so you've hooked a big deal and are reeling it in. Making sure that you have all the funding you need is critical at this point. In this part, you find out how to get approved for conventional financing. Or, if you like the idea of getting creative and buying commercial real estate without using any of your cash or credit, check out Chapter 9. We close out this part with a chapter in which you discover the secrets of raising private capital from outside investors. In it we also show you how to put together profitable partnerships.

Dayto Day Ownership and Operations

Now that you have bought a property, who's going to mind the ship You may be amazed to find out that it isn't always going to be you In this part, we cover important points such as how to pick commercial properties that can afford to pay for outside management. And we help you keep tabs on your important investments by revealing our simple manage the manger process. In this part, you also uncover the secrets of protecting your assets. Unfortunately in today's world it isn't what you make but what you keep that really counts. Finally, you get an insider's look at something you won't find in most investing books the reasons why some properties fail and how you can avoid making the same mistakes.

Kicking Your Investing into High Gear

When you start feeling like a pro and you're ready to jump into the fast lane, this is the part for you. These are the chapters where we really get you up to speed. For instance, we introduce you to commercial fixer-uppers. We also help you discover the insider secrets to taking a piece of land through the approval process so that it can be developed. Owning commercial real estate combined with the ideas Chapter 16 can save you tens of thousands of dollars in taxes every single year. Finally, in this part you find out how to jump into a commercial real estate career for extra income or to get an insider's edge on the deals you're putting together.

Twenty Four Good Reasons to Buy Options Instead of Properties

I am willing to bet anyone an ice cold case of Beck's Beer that the numerous commercial real estate market meltdowns that have occurred during the past 30 years would not have been so severe if the high rollers had bought more real estate options instead of properties. In this way, if they did not want to exercise their real estate options, they could have simply let them expire, and that would have been the end of it. And they would not have incurred any of the transaction, maintenance, management, holding, and debt service costs that eventually forced them to go belly-up. In other words, they would not have been saddled with the financial responsibility and personal liability that go along with outright property ownership, and they automatically would have avoided having to

Attract More Buyers to a Property for Sale

In commercial real estate, there are many different techniques that can be offered that look more attractive than they actually are. If you keep your own goal firmly in focus you can be more likely to stick to the techniques that take you closer to your goal rather than farther away. The key to this is to keep your goal clearly in your mind and not to deviate from any technique that will lead you away from the ideal. While you may give in or compromise in the end, it is best to leave that concession to the final moment. You should attempt to visualize the entire deal before you need to learn exactly where to make compromises.

Introduction to Real Estate Finance

As investors continue to migrate from the stock market to the real estate market, the need for sound financial analysis of income-producing properties is greater than ever. Just as buying high-flying stocks with no regard to intrinsic values resulted in hundreds of thousands of investors losing their life savings, so will buying real estate with reckless disregard to property values result in a similar outcome. While an abundance of books have been written on how to buy and sell houses, the market is virtually devoid of any works that specifically address the topic of the principles of valuation as they apply to real estate. Notable exceptions include more expensive titles such as Real Estate Finance and Investments by Brueggeman and Fisher, with a list price of 125, and Commercial Real Estate Analysis and Investments by Geltner, boasting a list price of 114. The Complete Guide to Real Estate Finance for Investment Properties How to Analyze Any Single Family, Multifamily, or...

Potential Risks That You Cannot Control When Using Real Estate Options

When I was starting out as an option investor, I bought a one-year option on a run-down commercial property in Ruskin, Florida, that belonged to a fertilizer manufacturer. And two months later, the company filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and the property I owned an option on came under the control of a court-appointed bankruptcy trustee. The judge presiding over the case in U.S. Bankruptcy Court in Tampa ruled that my real estate option to purchase agreement was personalty or personal property and that I did not have an interest in the property. The case dragged on for over two years and, in the meantime, my option expired and I was out my 3,500 option fee. The 3,500 lesson that I learned here was to always do a lawsuit search on the individual or business entity that owns the property before I ever plunk down my hard-earned money to buy an option.

What Kind of Properties

Should you invest in single-family homes, duplexes, apartment buildings, condominiums, shopping centers, office buildings, land, or trailers This 40-Day Plan has worked in nearly every community with every type of property. Keep your investor's eyes open. Remember, someone's going to buy that property you're considering someone's going to sell it someone's going to move into it. Staying narrow, deep, and focused brings success in any business. It's competitive out there. Most investors select one or two types of property and one geographic area to specialize in. I began specializing in single-family homes and duplexes in a certain area of Nashville, Tennessee, and it's worked well for me. I have a friend who specializes in small apartment buildings another who just does preconstruction on condos another who just does new construction in Las Vegas another who just does small commercial properties in his area. I highly recommend that you stay narrow, deep, and focused to keep your...

Increase the Return on Cash Invested in Income Properties

This goal is usually the most important goal for owners or potential buyers of income property. Due to its importance to buyers, it also becomes an important criteria of market appeal to sellers. The potential effect of financing on cash flow can be very important to the ultimate success in the sale of a property. For example, consider an office building that is free and clear of any debt. The NOI is 90,000. If the current market for such properties required that the invested capital give the buyer a 9 percent return, then an all-cash purchase price would require the buyer to come up with 1 million in cash. In essence, the return of 90,000 on the cash invested ( 1 million) would be 9 percent per annum. Now consider the effect of financing. Assume the buyer could borrow (or the seller arrange for it as a part of the offering package) new financing of 800,000 on the property at a constant rate (the combined rate which is interest and principal repayment) of 8 percent interest per annum...

What to Think About As You Get Started

When choosing to make an investment in anything, you have to take several things into consideration, right Why am I doing this How much does it cost Am I doing this at the right time Well, the same applies for commercial real estate. In fact, you may find that you have too many choices simply because there are so many different ways to profit in this field. The following sections go over some of the most common questions you may have when deciding which part of commercial real estate is right for you.

Myth 4 Some People Just Have the Midas Touch

Ask a tract home builder and he'll see forty single-family homes on that ten acres. Ask a custom builder, and he'll see ten luxury estates. Ask a retail commercial developer and she'll see a new shopping center anchored by two large retailers, with specialty stores and restaurants as fill-in. Ask a multifamily developer and she'll see a 150-unit apartment community with clubhouse, pool, and workout facility. Another commercial developer who specializes in office space may see a three-story office building. In other words, everyone sees the property differently, and each vision will deliver a different level of payout some better than others.

What type of investor am I

You can fall into one of two basic types of commercial real estate investors. The first is the cash-flow investor, and the second is the long-term hold investor. Both make excellent cases for fantastic wealth building and both can do well in an up or down market. Read on for details. Cash-flow investors purchase properties for the purpose of putting monthly income into their pockets. And they buy commercial real estate just like you would buy a business. In other words, if you were buying a ready-made business, you would do whatever it takes to make sure that the business is a proven moneymaker, right You would thoroughly check the financial records to prove that it could stand on its own every month. Well, cash-flow investors do the same. They take every measure to make sure they're investing in a property that produces nice monthly cash flow. your multiunit commercial properties. This helps cash-flow investors to actually make more money in a down market. The long-term hold...

Do I have to be a genius to crunch the numbers

This concept applies for office buildings and shopping centers as well. Just remember that for any property you want to analyze, you need to get the income first, the expenses second, and the debt payment third. From there, you can see whether the property makes any money. In this book, we go through this concept in much more detail. In fact, after going through the real-life examples that we provide, your confidence level should be incredibly high.

Watch the Daily Classified

This is the method I have found least profitable for finding and buying fixers. Yet, I consider it worthwhile, because it doesn't take a lot of time and it keeps you tuned into what's for sale in your buying area. I read the classifieds everyday and have done so for years. I always read Income Properties for Sale, Investment Properties, and Commercial Real Estate. I also keep an eye on Houses for Sale because occasionally, mom-

What investing opportunities are available

Gee, where do we begin to discuss how many types of opportunities you have to choose from when investing in commercial real estate It may sound clich , but there's something for everyone. If you like the cash flowing dynamics of the apartment business, there are exciting times ahead for you. How about making huge chunks of money developing land What about the stability of owning office buildings Consider also the endless growth of shopping centers. 1 You can invest in properties that have lots of problems and need to be fixed up. Commercial fixer-upper opportunities are in every city. Just like you can do with a residential property, you can fix up, flip, and profit with commercial property. Are there differences between obtaining a loan for a single-family home and a neighborhood shopping center The answer is yes, of course, but the differences may surprise you. Pretty much all you need to get a home loan is a good credit score, and then you have to make enough money to pay the...

Avoiding lawsuits the most feared risk

The most feared risk in commercial real estate investing is getting sued. Every tenant you have can be a potential lawsuit. You can also be sued by contractors, city personnel, and the list goes on and on. How do you protect yourself Here are two lines of defense Limited liability companies (LLCs) are by far the most popular form of ownership used today to hold commercial real estate. Warning The worst possible method of holding title is to hold it individually in your name. This way, you have zero liability protection and absolutely no privacy. In Chapter 12, we offer many tips and strategies for holding and protecting your property and assets. Your goal should be to build a legal fortress with the right experts.

Five Obstacles That Investors Must Overcome When Flipping Properties

I can tell you from firsthand observations that most of the investors who try their hand at flipping properties usually end up spinning their wheels. While I was writing this chapter, I received a telephone call from an investor here in Tampa who wanted to know if I was interested in buying a small commercial property that he had under contract to purchase. As I found out, this guy was unable to finance the purchase of the property, and his purchase agreement was due to expire in five days. He was in a panic mode, frantically trying to find someone to buy his agreement before he lost his earnest money deposit and the seller filed a lawsuit against him for failing to purchase the property as agreed. I passed on the deal but took down the property's street address for future reference. Who knows, if the property fits my needs, I may contact the owner later on and try to negotiate an option to purchase.

Leith Seegers Mc Kahan Real Estate Agent

George Castleberry, Tamara Fuller, Renata Circeo, Don Beck, and Elmer Diaz also participated in those teleconferences and wowed each of us with their incredible knowledge about the finer details of market analysis, property acquisition, and property management. Not only are they all incredible investors, they are all teachers at heart. Jimmy and Linda McKissack shared their insights into how they parlayed their real estate sales business into a phenomenal investing business. Jimmy's knowledge of the Texas foreclosure process lit our way through that thicket of information. Early on, Chris Hake took it upon himself to devise a spreadsheet that laid out how many properties one would have to own and how much cash flow those properties would have to generate to net a million dollars in annual income. George Meidhof and Michael Huang guided us through the early stages of how to set up legal entities for investments and how to structure every kind of partnership. George also visited us in...

What Types of Investments Are Available

Most people think commercial real estate is all about apartment rentals. Even though residential properties are a big part of commercial real estate investing, other types of properties make for excellent investment opportunities as well. For instance, commercial real estate includes offices and warehouses, retail centers, and even undeveloped land. We define commercial real estate as any real estate that's bigger than one house on one lot. So even if people live in the property, it's still commercial as long as it's bigger than one house. Some people would argue that a little property like a duplex or a four-unit isn't really commercial. That's ok. We like keeping our definitions simple. Actually, five or more units in an apartment building is considered commercial, but who's counting We explain each of the different types of commercial property in the following sections.

Apartments into Condos

More recently, rapidly escalating condo prices, rising vacancy rates in apartment projects, and softening rents have encouraged increasing numbers of investors to buy apartment buildings and convert them into condominium developments. Similarly, facing soft office markets, some investors are converting office buildings into commercial condominiums. Large numbers of doctors, lawyers, and accountants (or even other investors) are signing up to buy them.

Apartment buildings also known as residential properties

The commercial properties that are in the residential category include everything from small apartment properties (five or more units) to huge apartment building projects that cover several city blocks. You drive by thousands of commercial properties like this every day (or you may even live in one). Every single building you see is owned by a commercial investor who's in the game to make money. (Now anytime you see a nice apartment building, you won't be able to stop thinking about getting into commercial real estate investing.) What we find great about investing in apartments is that they're easy to find, banks love to lend on them, and they're great cash flow generators. The advantage of starting off with residential properties is that they're a great way to jump into the exciting world of commercial real estate investing. We both started off investing in small- to medium-sized multiunit properties. This was a great experience because it allowed us to make the jump to get started....

Varieties Of Mortgage Loans

Mortgages for one to four family unit homes, co-op apartments, and condominiums are called residential loans. Mortgages for apartment complexes along with office buildings and shopping malls are called commercial loans and are often sold in deals called Commercial Mortgage Backed Securities (CMBS). While CMBS deals have many characteristics in common with residential MBS, the sector is different enough to demand specialized expertise for proper valuation. Another large sector of the market is generically known as Asset-Backed Securities (ABS). ABS covers a potpourri of products backed by a wide range of collateral. The two areas with the most in common with residential MBS are home equity loans (second mortgages) and subprime primary residential loans mentioned above. Credit risk plays an important role in valuing these mortgages.

Offices and warehouses

After you get the itch to invest in commercial real estate, you'll never walk into an office building again without thinking, somebody owns this building. Why couldn't it be me Bingo It's called passive income for a reason. After you get your office building rented out you can sit back and watch the cash flow come rolling in. Heck, you can even hire a property management company to lease it out for you. Then your only obligation is to sit on the beach. HBEfl Triple net leases are so called because the tenants in your office building pay for all three categories of expenses. Tenants pay all three of these costs so that the rent you get is a net amount that you don't have to pay expenses out of. So after the tenants pay for all the expenses and you pay the mortgage, the rest goes into your pocket. It's quite typical for a triple net lease to be 5 to 20 years in duration with rent increases every couple of years. But that can be a disadvantage as well and here's why Let's say that the...

Building Your Comfort Zone

To establish your comfort zone, begin with your goals. Remember when you role-played the lawyer, the list of four goals were the office building, the home, the sailboat, and economic freedom. A comfort zone should be devised to help you attain those goals. However, in getting started, the comfort zone may have little relationship to the final product. If you, as a young lawyer, began at a stage in your life where you wanted to buy office buildings and have waterfront homes in Boca Raton, Florida, you would develop as your comfort zone the specific areas that contain exactly the kind of property that you want to buy. This means that you would geographically locate a zone or territory that consists of office buildings and waterfront homes in Boca Raton.

What You Need to Get Started

What's the secret ingredient that allows someone to make it big in commercial real estate If we told you, how long would it take for you to jump up, bolt out the door, and go find your first commercial deal Well, you're about to find out, so put on your running shoes. The secret ingredient is none other than desire. Yes, desire If you were expecting some fancy formula, we're really sorry. But, in the end, it really boils down to how bad you want it.

No real estate license required

Investing in commercial real estate requires a handful of skills. You don't need to understand differential equations or know how to rebuild a transmission. However, the skills in the following sections are a must. Are you able to talk and connect with people easily Do you like meeting new friends and finding out more about how they view the world If so, you'll do well at creating a stash of contacts. It's important to network with the people who will be investing in your commercial real estate deals because they hold the pot of gold. People that you meet will eventually be your advisors, investors, and partners, and they'll send deals to you and connect you with wealth-building resources. Can you look at a fax and properly enter some numbers into a simple spreadsheet And are you capable of using a calculator These skills help you determine what a commercial property is worth, what you should pay for it, and what your payday will be. If you need some pointers and guidance when it...

Stocks of REITs and Homebuilders

I strongly encourage you to directly own and manage real estate. By involving yourself directly in the real estate market, you will outearn passive investors in stocks by a long shot. Nevertheless, as one more real estate investing alternative, you can buy the stocks issued by real estate investment trusts (REITs) and large homebuilders such as Toll Brothers, K& B, Lennar, and WPP. REITs are companies that own and manage large properties such as office buildings, shopping centers, warehouses, and apartment complexes.

Knowing whether to buy hold or bottomfish

1 A green light in commercial real estate investing may be spotted when you notice upcoming job growth due to a factory expansion. Or when the demand to build exceeds the supply of available properties. Most likely, you'll also see a lot of undeveloped land sales activity. Making big money in commercial real estate is all about managing risks. Understanding and gaining knowledge of real estate cycles helps you lower your risk. Even though predicting real estate cycles is largely a game of luck, it gets downright dangerous if you know nothing about the trends in the market in which you're investing. The following is an outline of the typical commercial real estate cycle. This cycle can help you determine the best time to buy, sell, or go bottom-fishing. Here are the phases of the cycle, which are depicted in Figure 2-1

This Is Why Investing Is Confusing

Drinks, the furniture in your house, the shopping center your favorite store is in, the office buildings, the bank, the hotels, the airplane overhead, the carpet in the airport, etc. All of these things are there because someone invested in the business or building that delivers you the things that make life civilized. That is what investing really is all about.

Trends are your friends

True friends are always around when you call on them, and they won't ever let you down. And economic and demographic trends are your true friends in commercial real estate investing. And best of all, these trends aren't terribly complex or difficult to determine. Here are the three trends that are plainly fundamental when investing in any commercial real estate

Other Assets in the Market Portfolio

Publicly traded real estate could be easily added to the market portfolio in the form of the Wilshire REIT index. This index is comprised of companies whose main business activity involves ownership and operation of commercial real estate, and that derive at least 75 percent of revenue from these activities. There are 93 stocks included in the index, selected based on their source of revenue, liquidity, and market capitalization. These stocks are classified into sectors, which include factory outlets, hotels, industrial, local and regional retail, office, storage, apartments, and offices. The total market capitalization for the index is 144.8 billion (as of June 28, 2002). Second, publicly traded commercial real estate is only a small portion of total real estate in any economy, especially in the United States. In fact, owner-occupied housing is often one of the largest investments that an average investor holds during his or her lifetime. It is thus natural that one would suggest...

All Types of Real Estate Their Advantages and Disadvantages

I ew real estate investors always ask me what type of real estate is best land, houses, duplexes, and so on. Should they get into high-end property Low-end property Middle-income property Commercial property Apartment buildings Your job is to find a good deal in real estate, whether it is a 3,000 trailer, a 30,000 house, a 300,000 luxury home, a 3 million apartment building, or a 30 million commercial property. Find properties you are comfortable and familiar with at first, then expand. This chapter gives you an overview of different types of investing, so you can consider the advantages and disadvantages of getting into them.

Running the Numbers on Some Properties

Now that you have some basic commercial property investment terms and principles under your belt, we want to walk you through analyzing two properties. This is where it gets fun 1 Consider class. All commercial properties fall under classifications A, B, C, or maybe even D. Class A properties are newer, have top-of-the-line features, are in the best locations, and attract the highest-quality tenants. As you go into the lower classes, location, age, and construction become less desirable. Pay attention to what class property you're evaluating because as classes differ, so do location, price, rent, and occupancy.

Approach 1 Comparable sales

The first and easiest method in commercial property evaluation is called the comparable sales approach. Remember when you bought your first house and the bank had an appraiser go out and give the property a value that you hoped at least equaled your purchase price Well, the same applies here for commercial property. The commercial appraiser goes out and compares prices of recently sold local properties that are similar in form and function to the property he's appraising. The comparison will produce an average price and that price is what your property will be valued at. But in commercial comparables, instead of looking at just overall sales price, the sales price per square foot of the building is also considered one of the main factors. Even though the comparable sales approach is the easiest method for figuring out a value for a commercial property, we've run into two problems when using this approach

Getting Rich Is Automatic Jf You Have a Good Plan and Stick to It

Years ago, rich dad explained to me that much of what people think is investing is really the Hollywood version of investing. The average person often has mental images of floor traders shouting buy sell orders at the start of the trading day, or images of tycoons making millions of dollars in a single trade, or images of stock prices plummeting and investors diving out of tall office buildings. To rich dad, that was not investing.

Understanding What Creates Value

What is it that really creates value in commercial real estate Well, in residential real estate, such as single-family homes, what creates value is location. Location, location, location is the saying that you always hear. The most expensive homes are in the best of neighborhoods, right But location isn't the only factor that creates value in commercial real estate. In fact, there are two factors that are actually more important than location use and the lease. We cover these in the following sections. How a property is used is probably the most important factor in understanding values in commercial real estate. Here's why Let's say that you have a 5-acre lot directly across the street from a brand-new luxury apartment complex that has a three-month waiting list for new tenants. Common sense says that you should develop it into another apartment complex because there's great demand. It appears big money awaits you. How a piece of land or property can be used is, for the most part,...

Leases As the lease goes so goes the value

A lease is a written legal agreement between the lessor (the landlord) and the lessee (the tenant) whereby the lessee compensates the lessor (by paying rent) for the use of the property for a specific time period. There's no such thing as a typical commercial lease, but here are a few main differences between a lease for a commercial property and a residential property (an apartment unit, for example) When you buy a commercial property, you're buying the leases, and the property comes for free. That's how important the actual lease is to the value of the property. Simply put, if the lease is weak, your property value is weak. And conversely, if the property has a strong lease, the property value is going to be strong.

Amount of Leverage Generated Is Not the Final Criteria

Remember, while you can make a marginal deal acceptable, you may not be able to turn a bad deal into a good deal. Overworking a transaction generally means you are looking for some rationalization to enable you to make the investment. While it may be okay for you to make the investment, do not kid yourself that something that looks good on paper (using figures you have forced) is a good deal after all. This points out the importance of having good facts on which to base your final decision. In all my 35-plus years as a commercial real estate broker, I stress to buyers that the only economic figures of a transaction that they can rely on will be the ones they arrive at through effective due diligence and the application of their own experience. This is not because sellers lie about the data, although many do, but the simple fact that the present owner may be running the property (or business) to a different drummer than you would.

On Your Mark Get Set Go Find Deals

So you want to know where you can find bargain commercial properties. Well, you've come to the right place. In this chapter, we discuss just that finding deals in the commercial world. By connecting and getting to know some of the right people and players, you can pull in some pretty big fish (and maybe find a commercial deal or two ). We share with you useful tools that may come in handy in your search. We tell you who to talk to, where to go, and why you should go there. Always buying in your own town can get boring and costly, so we also talk about how to go big-time and invest in commercial properties in other cities across the country.

Discovering the Secret to Finding Great Deals

Let's face it Finding great commercial properties is difficult to do. So what's the big secret to being successful The secret is that there is no secret. Finding great commercial deals is a matter of having multiple fishing lines in the water and being willing to put in the work upfront, knowing the real payoff comes down the road when you find that incredible once-in-a lifetime deal. It's also a matter of performing a variety of different tasks, including creating relationships, sending out mailings, and focusing on the ponds that are most likely to have the big fish those profitable, cash-flowing commercial properties that you're trolling for. To get the hang of all this, you need to spend time with other successful commercial investors. The fastest way that you can discover what's possible is by being in a group of people who are finding and investing in commercial properties that make sense. That way, when you run into the sellers who want too much, a part of you will get angry...

Defining your property search

Many beginning commercial investors typically start out looking for commercial multiunit properties with anywhere from 5 to 50 units. Creative financing, including nothing-down deals, is possible in this market segment because it can be difficult for owners to get conventional financing. The reason is because lenders who make loans on commercial properties would much rather put together a loan on a 300-unit apartment building than they would on a 20-unit apartment building. It's basically the same amount of work, and the lender makes much more on the larger property. Aim to know enough about office buildings, small shopping and retail centers, and other types of commercial properties so that you can quickly analyze any deal you run across, even if it isn't exactly the type of commercial property that you're looking for. After you've spotted a good deal and have it under contract, you can pass the deal along to another commercial investor you network with.

Developing relationships

After you've decided on the type of properties you want, the next step is to think through all the different ways that you may be able to connect with either the owner of the property or someone who knows the owner of the property. Perhaps it's someone who's aware of some of the life challenges that the owner may be facing. It's unfortunate, but even commercial property owners end up getting divorced or having medical issues. Or maybe the property is having challenges that the owner himself can't resolve. How can you get to know people who are aware of the challenges that may come up with the property itself Did you think of property managers Good job if you did. What about county health department officials These folks will know about commercial properties that are in trouble because necessary repairs have not been made. Don't forget about everyone else who's involved in the real estate process, including commercial real estate brokers, residential real estate brokers, title agents,...

The Infamous Limited Partnerships Of Yesteryear

We cannot talk about the REIT structure without also discussing real estate limited partnerships. The real estate limited partnerships so popular in the 1980s were designed for the purpose of buying and owning commercial properties and generating positive cash flows for their limited partner investors however, in many cases, the properties did not live up to expectations. What investors really bought was the tax shelter these properties offered, along with the hope of capital appreciation. In a rapidly rising real estate market, simply holding the property for six months or a year, even if it was operating at a loss, would mean that investors could enjoy a nice capital gain. When, however, the tax laws were changed in 1986, followed by a cooling off in the real estate markets, the arrangement no longer worked. Investors were unwilling to continue suffering losses for any length of time when upside was limited and the loss was no longer a good tax shelter. Excessive debt made the...

Loan Origination Costs and Fees

If the borrower needed 3 million for a first mortgage on a commercial building, the commitment fee could be 60,000 or more. If the borrower was not a triple prime borrower, then the commitment fee, or loan origination fee, may be much higher. The lender will tell the borrower that if a loan is offered along the terms requested, then the fee will apply to the closing of the loan. In some situations, this fee may be built into the loan or added on top of the amount required by the borrower. This is to ensure that the project or purpose of the loan will not be diluted. Also it will ensure to the lender that the fee for making the loan will be covered.

Newspaper ads and publications

You can often find owners of commercial properties who want to sell by looking at newspaper classified ads. The Wall Street Journal and The New York Times are good places to get started, especially if you're looking to buy in an area that isn't necessarily close to you. And we like these publications because they list properties from all across the United States.

Lending Reits Versus Ownership Reits

We discussed earlier what the statutory requirements were for a REIT. According to those requirements, there is nothing in the legislation requiring a REIT to own real properties. It is within the boundaries of the legal definition for the REIT merely to lend funds on the strength of the collateral value of real estate by originating, acquiring, and holding real estate mortgages and related loans. These mortgages might be secured by residential or commercial properties. As of the end of 2004, there were thirty-three mortgage REITs. Hybrid REITs both own properties and hold mortgages on properties. They were popular some years ago, but, except for certain health care REITs, are not widely prevalent in today's REIT industry.

Taxable Income or Loss

(An editorial aside The author, having learned the commercial real estate business in the Pleistocene Age, still uses the traditional term, depreciation. In the Modern Age of unrelenting political correctness, you will frequently find this same concept referred to as cost recovery. Congress, ever the subtle wit, no doubt became uncomfortable with an economic term that conveyed the notion of unremitting decay and collapse, and chose to replace it with one that conveyed a sense of a rise-from-the-ashes return to health and well-being. No political agenda here, of course. It is interesting to note that they could not let go of the term depreciation recapture, which seems to conjure up subliminal images of the taxpayer as escaped convict, once again ensnared.) At this writing, you can depreciate a residential income property over 27.5 years, and a nonresidential property over 39 years. Since not everyone buys or sells on the first of the month, the tax code tries to even matters out with...

Cash Flow before Taxes

If tomorrow the House of Representatives should decide that the useful life of commercial real estate ought to be 100 years instead of 39, then your property's taxable income will rise without your experiencing a single additional dollar in rental income. Why Because the longer write-off period would mean smaller annual deductions for depreciation, and fewer deductions mean higher taxable income despite the fact that your gross and net incomes remain unchanged.

Property owner associations

Join both the local and national chapters of any commercial property owner or manager associations, as well as any other associations that may include commercial property owners or brokers. Consider joining the National Association of Apartment Owners (www.naahq.org) and finding a local chapter to network with. You should also consider the Institute of Real Estate Management (www.irem.org) because it focuses primarily on owners of managers. Or if your interest lies in office buildings, join the Building Owners and Managers Association (www.boma.org). There are 92 local chapters nationwide. And for you shopping center lovers, take a look at the International Council of Shopping Centers (www.icsc.org). They're known for deal making among themselves. Join the party.

General Equilibrium Investment Strategies under Imperfect Competition and Asymmetric Information

In many real-world situations, agents must formulate option exercise strategies under imperfect information. In such a setting, agents may infer the private signals of other agents through their observed exercise strategies. The construction of an office building, the drilling of an exploratory oil well, and the commitment of a pharmaceutical company toward the research of a new drug all convey private information to other market participants. Grenadier (1999) develops an equilibrium framework for option exercise games with asymmetric private information. This framework allows many interesting aspects of the patterns of equilibrium exercise to be analyzed. In particular, informational cascades, where agents ignore their private information and jump on the exercise bandwagon, may arise endogenously. This analysis reveals several interesting implications. With imperfect information, equilibrium exercise timing will almost always deviate from the full-information optimum. Those with the...

Surveying the pros and cons of local investing

The main downside to investing locally, however, is that you're limited to just the commercial properties in your area. What if you can't find a good deal close by What if properties are too expensive And why would you want to limit yourself to just investing locally when you can pick from any of the thousands of commercial properties available across the entire United States Another disadvantage to investing locally is that you're likely to be tempted to stop by, give your advice, and stick your nose into situations that should have been outsourced to a property management company (check out Chapter 11 for more on property management). Many of our Commercial Mentoring students struggle with this disadvantage at first. They want to find that perfect commercial property right down the street so they can drive by and monitor it. Of course, unless there's a tornado, real estate whether it's in Kansas City, Chicago, or San Francisco isn't going anywhere.

Standards That Make A Loan Conventional

A borrower, are the percentage of loan-to-value ratio that the lender is allowed to lend. This percentage depends on the kind or category of loan and may vary between lenders. For example, most savings banks (both state and federal) are allowed to lend up to a set amount that is determined by a percentage of the appraised value of that property. But, and most important, most of these institutions have internal limits that they set on their own lending practices that generally limit those amounts to a lower amount. This may depend on the borrower's credit history and credit scores. There are many things you can do to improve your credit history. The most important of all is to simply pay off your obligations in full, or at least meet all your scheduled payments on time. Credit card debt is the major reason that people have a poor credit history, mainly because it is promptly reported by the credit card companies and banks that issue these items. Make it a point to enquire what the...

Investing outside of your community

Many of us who live in big cities have had to go out of our states to find commercial properties that meet our investment objectives. And this is because sale prices in big cities have increased so much that our investment returns have shrunk to almost nothing. Going out of your community, you'll find the kind of great deals that were in your city years ago. In most cases, it's just a matter of time before that community will be out of your price range too. If you live in the city, consider going to the suburbs to look for deals. Go to the outskirts of your community, to sleepy towns and undiscovered areas, to find your next great deal. You may find lower prices, great investment returns, and greater growth than you would in an already matured big city.

Determining your location with demographics

The study of demographics allows you, as a commercial real estate investor, to pick the areas of the country that are most likely to have the conditions that make commercial property a successful investment. Demographics include the following It's true that when talking about what makes a good real estate location, good economic times and prosperity are a big piece of the puzzle. So, when you're looking for the market in which to buy your commercial property, find markets where jobs are increasing, where median income is rising, and where companies are relocating and hiring people. With commercial real estate, it's all about being in the path of progress or going into a marketplace that's really at the point of taking off because of the people moving in and businesses growing to support them. If you have a strip mall in this area and suddenly a lot of new apartment buildings go up and people come into the area, your rents in the strip mall will likely increase. And with higher rents...

Making unsolicited offers

Properties that aren't listed for sale that you make offers on are unsolicited offers. This is a superb way to add commercial properties to your portfolio. Here's what we did, and you can do the same We went to a title company and got a copy of all large (50-plus units) apartment owners' names and addresses in a certain city. We sent letters to every one of them telling them that we are interested in purchasing their property. On half of the properties, we had enough bare property info to send purchase contracts via certified mail. We got a much higher response from the owners that received contracts than just letters of interest. The most interesting thing we found was that nearly all the owners who responded to us had additional properties they wanted to sell. You can do the same on shopping centers, office buildings, or warehouses.

Unlisted properties Hidden fish in the streams

How can you find these commercial property owners One way is to run a simple property wanted ad in your local newspaper. Here's some language that worked for coauthor Peter Conti Private investor wants commercial property. Will look at all, any condition. Call Peter at 303-233-2233. You can also send direct-mail flyers or postcards to commercial property owners. To do so, you first need to create a list of the names and addresses of the commercial property owners in the areas that you're interested in. Look for companies that provide these lists online. These companies put together lists after purchasing information from the county recorder's office. They put information into their databases, and then sell specific lists to investors and other users. To find a list company in your area, ask other investors at your local investors' association. If you don't have success there, take a trip to your county recorder's office there you can ask about the companies that purchase information...

Strategies for Making Offers and Negotiating

So maybe you've found what you think could be a great deal. It's okay if you're unsure about the deal's strength because in this chapter you discover how and why the seasoned pros constantly make offers to buy commercial property without needing to know all the important facts about whether a property might be successful or not.

Offices And Industrial Properties

Office buildings and industrial properties are often grouped together in REIT discussions. While many of their economic characteristics are very different, they are the primary types of properties leased to businesses that do not cater to individual consumers. In that respect they are very different from apartments, retail stores, self-storage facilities, manufactured-home communities, or even health care institutions. In addition, some of the REITs in this sector own both office buildings and industrial properties. Office buildings. Office buildings are normally a very stable property group after all, millions of employees who provide service to customers and clients must have an office somewhere. But due to the long lag time between beginning construction of a major office building and its completion, overbuilding in this sector can be a As noted above, a problem unique to the office sector is the long lag time between obtaining building permits and final completion. Once the...

Starting with the end in mind

To increase the chances of getting your offer accepted, you need to understand some of the games that are played in the commercial real estate arena. Making offers used to sound something like this Offer a low price or great terms and be willing to negotiate up from there.

Sizing up the setters and what they realty Want

We understand that when most folks start investing, they may not have tons of cash laying around to put into deals. So, if you fall into this category, instead of sitting around moaning about it, focus on those commercial property owners who don't need or want cash right now. These sellers are found in three groups il Owners who have made tons of money by investing in commercial properties and simply want to see someone who's passionate about their property become the new owner So, you don't need to have a magnetic personality to persuade sellers to sell to you. What you need instead is a supply of sincere care for the other person and the willingness not just to listen to them but to really hear what they are telling you. By using these powerful negotiating tools, you'll become unstoppable. And the better you get at connecting with people, the wealthier you'll become. Not only will you end up with more commercial real estate, but you'll also probably be happier, have more friends,...

Step 3 Build the brokers or sellers motivation level for selling

It is part of human nature that someone who has owned a commercial property for a period of time is probably going to have an inflated idea of the type of offers they may be getting. After all, one of the nice things about owning a property that gives you a passive stream of cash flow is daydreaming about exactly how much your little gold mine is going to be worth some day. So, make sure that you use this step to bring the seller's motivation into the equation. i Share with you the opportunities for you to improve the net income from the property. It's important for the broker and the seller to recognize that because you profit by improving properties, this commercial property isn't for you if it's perfect.

Step 4 Determine the financial details of the deal The Money Step

After you've discovered the seller's motivation, move on and get all the financial details onto the table so you can start working with the seller to create a deal that meets his most important needs and has a fair profit for you. When done well, this step helps you lower the seller's expectations of what the commercial property is worth so that you can get a good buy on the property.

Trading Costs on Real Assets

If your investment strategy requires you to hold real assets, you may be exposed to very large trading costs. Real assets can range from gold to real estate to fine art and the transactions costs associated with trading these assets can also vary substantially. The smallest transactions costs are associated with precious commodities - gold, silver or diamonds - since they tend to come in standardized units. With residential real estate, the commission that you have to pay a real estate broker or salesperson can be 5-6 of the value of the asset. With commercial real estate, commissions may be smaller for larger transactions, but they will be well in excess of commissions on financial assets. With fine art or collectibles, the commissions become even higher. If you sell a Picasso through one of the auction houses, you may have to pay15-20 of the value of the painting as a commission. Why are the costs so high The first reason is that there are far fewer intermediaries in real asset...

How to Meet the Seller When Submitting Your Offer

1 Limit your offers and negotiations only to for-sale-by-owner property that isn't listed with an agent. This is the simplest way to make sure that you connect directly with the seller (and a method we've used extensively when guiding our mentorship students to buy single-family houses), but we don't recommend it as the only method. Why Because most of the commercial properties that you'd want to buy are probably going to be listed with a real estate agent. So, I'm getting the feeling that perhaps I should just pass on this deal and spend my time on one of the other commercial properties that I'm considering with another agent.

Commercial contract to buy and sett real estate

Your commercial broker should have the standard state-approved contract form that's commonly used to buy and sell commercial properties. On this form, which is many pages long, you'll find all kinds of clauses to cover every possible situation that might ever come up with your deal. Ask your broker to give you a copy of this form so that you can get familiar with it. You can also use addendums to provide the outs in your agreement. This allows you to tie up a commercial property yet still have time to look it over, do your due diligence, and make sure it's a deal that you're comfortable moving ahead with.

The Traders Levels Of Ascension

In the process of becoming a professional FOREX trader, there are five levels through which it has been proved that practically everyone will have to evolve. Sometimes you might think that you have reached a higher level, just to find yourself again at level one or two. I like to use the following as a way to help determine where you are at a certain point in your evolution as trader. Assume that you are on your way to my office building to work with me as a professional currency trader. When you get to the lobby, you find out that all the professional traders in my office are on the fifth floor. The problem is that there is only one way to get to the fifth floor, and that is to work your way up. Obviously, you have made your mind up that trading currency is something you want to do, and you have committed to by investing in this book. So you decide to take the journey and start off on the first floor.

Value Added Real Estate

Typical tactics employed by value-added real estate managers include retenanting, recapitalization, repositioning or rehabilitation, redevelopment, and new development.3 The concept of retenanting a property has a focus on increasing occupancy and upgrading tenants, either in terms of the credit quality of the tenant pool or the pricing and length of the leases with tenants. Higher occupancy rates increase funds from operations and raise a property's overall appraised value. Higher-credit tenants, higher lease rates, and longer leases improve property cash flows and reduce risk, thereby raising the price that other operators are willing to pay for the facilities. Recapitalization of properties relates to reducing the interest rate on debt associated with a building, thereby increasing net funds from operations, or reducing the total amount of leverage on a property, thereby improving the equity value and credit rating of the property. Repositioning or rehabilitating properties include...

Infrastructure Properties

From an investment perspective, real estate is more often defined by its strategy approach than its property type. Nevertheless, it is clear that operators must have very different skills and experience to be successful in one type of property versus another. For example, an investment manager who owns office buildings has very different business considerations than one who owns industrial sites, shopping malls, or residential rental units. These property types can be utilized across the various investment strategies. For instance, office buildings can be contained in REITs, core, core-plus, value-added, and opportunistic funds. In each case, a discussion of the property type is better defined by the investment strategy than it is by the characteristics of managing the property. Although this chapter focuses on how real estate is situated in the investment strategy landscape, rather than how property types are managed, an exception is infrastructure properties.

Presenting Your Offer in the Best Light

When presenting offers, it's important to convey a message that the brokers will understand. As part of becoming an expert commercial real estate investor, you need to be able to speak about cap rates, the mix, and value added deals. If you're new to the commercial real estate field, simply study and notice the words used by investors (many of which are in this book). It's also helpful to talk with your mentor, because chances are that he or she is already in the loop when it comes to talking like a pro investor. After you understand the lingo, you can start sprinkling the new investor language into your conversations with brokers.

Property Improvement Loan Insurance Title I

HUD insures loans to finance improvements, alterations, and repairs of individual homes, apartment buildings, and nonresidential structures, as well as new construction of nonresidential buildings. Loans on single- family homes (except manufactured homes) and nonresidential structures may be for up to 25,000 and may extend to 20 years. Loans on apartment buildings may be as high as 12,000 per unit, but the total for the building cannot exceed 60,000, and the loan term cannot exceed 20 years. A loan on a manufactured home that is classified as real property may be for up to 17,500 with a maximum loan term of 15 years. Loans on other manufactured homes are limited to 7,500 and a maximum term of 12 years. A property improvement loan may be a loan from the lender to the borrower or a retail sales installment contract (purchased by a lender) between the borrower and the contractor or dealer providing the materials or services.

Government Agencies Can Be an Excellent Source of Problem Property Leads

One of the best sources of problem property leads that is often overlooked by most investors is local, county, and state government agencies. For example, one of the types of properties that I buy options on is vacant commercial properties that have been repeatedly cited for non-structural code violations. I have chosen this particular type of property because these properties are in steady supply and are relatively easy to find in Hillsborough County, Florida. The code enforcement departments for both the city of Tampa and Hillsborough County maintain files on all of the properties that have been cited for code violations. Plus, these properties have bright fluorescent orange condemnation notices conspicuously posted on them. The following local, county, and state government agencies are all sources of problem property leads

Making due diligence a team effort

The best way to find a property inspection specialist is through a referral by an individual or a company that has experience with this part of due diligence. You can also ask your local commercial real estate broker for a referral. If you have no luck there, try entering the key word commercial property inspection into your favorite search engine. A handful of sites is bound to pop up. When it comes to the financial part of due diligence, we suggest that you be advised by an accountant who has real estate investment experience. Accountants aren't all created equal. Qualify your accountant by verifying that he or she has commercial real estate accounting experience, not just single-family residence accounting experience or general business experience. In some cases, the investment you're considering may be one of your largest. Would you trust the advice of an accountant with little experience in one of your largest financial endeavors ever We didn't think so. By far, the best way to...

Why Properties with Problems Dont Scare Me

Personally, I like properties with problems that scare off most conventional real estate investors. Generally, these are properties with correctable problems that appear to be complicated and usually require some sort of specialized knowledge in order to be solved. However, in most cases, it is the common mispercep-tion of how difficult the problem is to solve than the actual problem itself that scares off most conventional real estate investors. For example, I specialize in buying real estate options on small, vacant, condemned commercial properties that are structurally sound but in dire need of an industrial-strength cleaning. Most conventional investors are instantly turned off by this type of property

The First Things You Need to Do

In the case of commercial real estate investing, it's okay to shoot first and ask questions later. Before you go spending your time, money, and energy on due diligence, you first need to get control of the property by putting it under contract. Because thorough due diligence costs several thousands of dollars and involves many days of hard work, make sure it's a deal worth going after. The following are some things you can do after you're under contract but before you spend any money or significant amount of time

San Francisco and Marin County

This was where I lived until we moved to Maui in 2000. The Bay Area real estate prices have trended upward over the past 20 years. This rise was interrupted only once by a severe commercial real estate recession, matching the U.S. recession in 1989-1991. Residential markets also suffered. I personally benefited from the mini-panic in 1989, as it afforded me my first house. I bought a house in Mill Valley for 389,000 that the previous owner had bought for 440,000. After real estate fees, he suffered a 15 percent loss over the five years he owned the house.

Determining what you need to get started

You won't find such wonderful financing options for larger apartment buildings (five or more units), commercial real estate, and raw land. Compared with residential properties of up to four units, such investment property generally requires more money down and or higher interest rates and loan fees. Please see Chapter 8 for more details.

Financial due diligence checklist

I Lease agreements A lease agreement can be a complex legal document. We suggest allowing someone who has expertise with that type of lease do the auditing for you. If all the leases are the same, such as in an apartment building, have an attorney review the first few to make sure that they're valid. For every other category of commercial real estate, we suggest verifying the leases by using an estoppel letter. This letter confirms that the lease is true and accurate and is the only agreement that's made between the tenant and the owner.

Do I need an attorney for my closing

Attorneys commonly handle commercial real estate closings. And having the help of an attorney is advantageous, because so many things can go wrong during a closing. With all the complex language that's used in closing paperwork, an attorney can help you wade through it all.

Where Can I Download Commercial Real Estate Funding System

The legit version of Commercial Real Estate Funding System is not distributed through other stores. An email with the special link to download the ebook will be sent to you if you ordered this version.

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