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3 Things You Need to Focus on Before Getting Started in Commercial Real Estate

September 7th, 2010 |

Author: joe

Investing in Commercial Real estate can provide you with an opportunity for passive income and financial freedom that most people can only dream about. In addition to the income, investors also have the opportunity to increase their net worth from the appreciation of the property and additional tax benefits. However, as with most things in life, there is ALWAYS two sides of the coin. In order to succeed in any endeavor you have to have focus.

Here are the three things that you need to focus on before getting started in Commercial Real Estate…

1.) Focus on a Specific Property Type. Most commercial real estate investors specialize in a particular type of property i.e. Apartment Buildings, Retail Shopping Centers, Office Buildings, Self-Storage, etc. If you talk to any successful commercial real estate investor, they will generally tell you what types of properties they like to invest in, as well as, the price range and locations in which they generally invest. I rarely, if ever, have come across a commercial real estate investor who invests in all property types. You might find a real estate investment firm that specializes in acquiring multiple property types, but you better believe that they have multiple Acquisition/Asset Managers that specialize in a particular property type.

Rarely do you see a Jack-of-All-Trades in commercial real estate investing, therefore, you need to focus on what your specialty will be.

2.) Focus on a Specific Location. Initially, you will probably want to focus on a particular part of town. Every neighborhood is different and will demand different rents and capitalization rates. By focusing on one area, you will be able to become an expert in that sub-market much faster and you will be able to filter the good deals from the bad ones. You will know when a broker’s proforma’s are unrealistic (they generally are!) and you will be able to compare properties based on all of the knowledge and details you have acquired in your chosen farm area.

3.) Focus on a Strategy. Once you find a good deal, you need to know how you are going to acquire it. If you have access to capital and you plan on going the tradition financing route, then you need to have commercial lenders already in place. You need to know their policies and procedures so that once a property is under contract you can get the ball rolling with your lender immediately. If you do not have the funds to acquire property, then you need to be focusing on ways to raise the capital or partnering up with another investor, or you need to know what creative financing technique you are going to focus on. If you are financing creatively and you do not have any cash, you will probably need to do a Master lease option, or try to get the seller to hold the financing.

By focusing on these three things you will be able to filter through the deals that will not work for you. It doesn’t necessarily mean that they are bad deals, however, they may not be right for you. You will save yourself alot of time and frustration by simply directing your focus towards a particular property type in a particular part of town, that you will acquire in a particular manner.

Hopefully, this article was helpful and provided you with more clarity on what you need to focus on in order to move forward with investing in commercial real estate. If you have any questions, we can carry the conversation over into the comments below so please let me know your thoughts and comment below.

Comments are always welcomed and encouraged! Let me know your thoughts below in the comment section and feel free to retweet this post on Twitter or share on Facebook.

Photo: Kreatively Kristin

3 Things You Need to Focus on Before Getting Started in Commercial Real Estate

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Housing Market Insight – Week of September 6th

September 7th, 2010 |

Author: joe

Last week the sentiment in the housing market seemed to turn slightly for the better. This post will tell you why as we cover the discussion over more tax credits, interest rates, the mortgage application index, and a surprise in pending home sales.

Tax Credit Discussion, Quelled

What seemed to be a stirring of a potential renewal of the home buyer tax credit this week was squashed by the White House and several industry trade groups, including representatives from the National Association of Realtors (NAR) and the National Association of Home Builders. Walter Molony, spokesman for NAR was quoted in the San Francisco Chronical as saying, “We are not advocating another one. We think it’s important for the market to have time to recover on its own.”

Finally the people representing these associations are starting to admit the tax credits didn’t do much but pull sales from the future and disrupt the natural state of recovery. Further, I feel many people have, in fact, been waiting for another tax credit before they buy a home. This finality on the issue is good. Without these industry associations lobbying heavy, the home buyer tax credits may have seen their last days. Everyone is starting to focus on the real problem with housing; consumer confidence and ultimately job growth.

Interest Rate Update: Down to 4.32%

Freddie Mac reported interest rates fell further this week continuing a slide towards unthinkable sub-4% territory as the 30-year fixed dropped to 4.32% from last week’s 4.36%. One year ago the 30-year fixed stood at 5.08%. Meanwhile the 15-year fixed dropped to 3.83% down slightly from last week’s 3.86%.

This section seems should be called, “How much rates dropped this week”. Seriously, I think these small drops are important to the American psyche. It should pretty much ensure that some activity in the housing market will be created, whether it only amounts to refinancing right now at least means people are creating more disposable income. Even if they’re using this to save today, when people are more confident, this pent up demand in spending could open the spigot.

Mortgage Applications: Refinances and Purchases Up

The Mortgage Bankers Association reported its Refinance Index increased 2.8% from the previous week hitting a high not seen since May of 2009. The Purchase Index also increased slightly 1.8% from the previous week as low rates continue to spur activity in the mortgage markets.

This represents further evidence that people are mostly focused on refinancing. It’s important to note that activity is good and bodes that action exists in the mortgage markets. I’m hearing many of my colleagues in the mortgage business say they’ve never been busier. This activity is resetting many peoples’ debt structure. Disposable incomes are starting to build for those that are employed. This could bode well for the future.

Pending Home Sales Jump Unexpectedly

After anticipated drops in pending home sales immediately following the home buyer credit, the National Association of Realtors has reported a rise in pending home sales. The Pending Home Sales Index rose 5.2% on July contracts from a downwardly revised June. The index however, is down over 19% from July 2009.

Pending home sales are a future indicator of activity, meaning we could see a small rise in closings in August and September. Further, affordability continues to rise as absorption of inventory continues to fight a foreclosure tidal wave.

At What Point do you Invest?

We discussed last week how many people are simply not making moves because of the negative sentiment in the market. As someone who works inside an opportunity fund, we’re seeing significant movement within the capital markets. Things seem to be changing on a weekly basis and while the sentiment is certainly bearish on housing, that hasn’t prevented insiders from buying stressed and distressed assets at bargain basement prices with cheap money. I think if people are focused on the national picture as their primary information source it is easy to miss the market opportunities. Smart investors are quietly buying up real estate around you.

Housing Market Insight – Week of September 6th

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Open Question: rent house in italy catania monthly rentel 150 euro?

September 7th, 2010 |

Author: joe

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Open Question: Are two bedroom apartment price ranges per room or all together?

September 7th, 2010 |

Author: joe

My best friend and I are moving in together, getting a two bed/two bath. I’m trying to figure out if on most web sites the price range is per person/room (which most of the apartments we visited were) or if its all together and we’d each have to pay half of that price. Example: $600 a month = $300 rent for each of us.

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Structuring a partnership

September 7th, 2010 |

Author: joe

I think you have a great opportunity in front of you if structured properly.

Here are a few thoughts of mine:

Who brings in the money for acquisition?

I assume your friend manages the rehab, you do the accounting and loctae, negotiate and contract the potential purchases.

Depending on the first question, your profit split could be 50% or could be different. (the first question is key)

Your friend is either trusted or not trusted so that is a question only you can answer. If he was to skim by charging more for the rehab, you then ned to be aware of the general costs to do specific items and keep an eye on that. You can certainly get other bids, but if your frend is honest, it behooves him to keep teh costs down as the profit still gets back to him and more delas are possible to be produced.

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Help Needed With REO offer that’s hanging in limbo.

September 7th, 2010 |

Author: joe

Did your offer have an expiration date? Tell your agent that your offer is due to expire at ____ (whtever you placed in the offer), and to follow-up on that basis (before it expires).

Are you using your own agent to present your offer, or are you using the listing as your agent?

If you are not using the listing agent, is the offer going through a web / internet portal where your agent enters the offer details?

Using the listing agent as your agent has the advantage of the listing agent wanting to get biggest commissions – so your offer might get preferential treatment (if very close to what others have offered).

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How You Should Handle the IRS (and how to get an accountant)

September 6th, 2010 |

Author: joe

Last week I got a letter in the mail from the IRS. Of course, when I saw the envelope I thought two things: “Crap, I’m getting audited” and “crap, I owe them more money.”

When I opened the envelope there were several documents, which I didn’t really understand (or have the patience to understand) and for some reason there were multiple copies of each document. I still haven’t figured out the reason for this and don’t really care.

Anyway, as soon as I read the letter I faxed it off to my accountant so he could read it and take care of the problem. Which brings me to the main point of this article. If you’re a serious real estate investor and don’t have an accountant you’re nuts. With the rental properties and the flipping of houses and all the other things I do, I would never in a million years want to do my taxes myself.

Plus, I don’t trust the government…

I used to work for the CIA so I know the things the U.S Government does, and the last thing I would want to do is call the IRS first and get myself into some kind of jam by saying the wrong thing or having them record my conversation while I unknowingly made damaging omissions.

Obviously, I will never do anything illegal when it comes to paying taxes. I think anyone who doesn’t pay taxes is a fool. Look at Wesley Snipes who refused to pay taxes and he’s probably going to end up in jail for a few years. But, the thing is, you still don’t have to do anything illegal for the government to figure out some way to screw you.

Luckily, my accountant got right back to me and the problem was quickly resolved. Somehow the IRS had duplicate copies of my tax return but all of my taxes were paid and everything was good. Then they gave me some type of reference number, which of course I wrote down and will be waiting for the day when they contact me again saying I never resolved the problem.

But what if you don’t have an accountant yet?

Well, most importantly, I recommend getting an investor friendly accountant who understands the real estate investing business. My personal accountant is a landlord with multiple properties and used to own one of the REIA’s in my area.

You should definitely go to your REIA’s and ask all of the successful investors who they use. When the same name starts popping up often, that’s your clue that you might want to use that person. And whatever you do, don’t be cheap when it comes to your accountant. There are certain things you don’t want to skimp on in life and your accountant and lawyer are two of those things.

Also, to make it easy for your accountant to do your taxes at the end of the year I’d use a software like Quickbooks or Quicken rental. This is the smart way to save money –by making it easier on your accountant, not by going to some place like H&R Block to save money.

To sum it up, get an accountant now before tax season gets closer. They’re one team member you don’t want to live without.

How You Should Handle the IRS (and how to get an accountant)

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Mobile Home Tenant Screening Guide

September 6th, 2010 |

Author: joe

Ultimately whoever occupies your investment home is your decision. The choice of who will move-in, maintain and occupy your investment property should be carefully screened and cherry picked until you have the “perfect” tenant or tenant-buyer. Let’s get real, “In many areas of the country some landlords are fighting over the scarcity of renters in the market.”

After only a handful of year’s managing properties I have come to agree with the classic 80/20 rule. Eighty percent of the tenant problems that will arise are caused by only twenty percent of the residence. Therefore the worst part for me is knowing that most of these problems could have been avoided if I had spent five extra minutes qualifying each tenant before I allowed them access into my investment home.

So there is the dilemma; Do you rent/rent-to-own your home now to a less than qualified tenant with first and last months rent or do you wait (and continue paying holding costs) for Mr. & Mrs. Right?

Being a landlord isn’t always easy, you are responsible for making snap determinations for who can and cannot live in your home. Not only that but you have only a short period of time (days) and limited resources to qualify or disqualify these new applicants. Lets looks at the facts..

Screening Your Mobile Home Tenants

Verify Employment: Call the present and previous employers to see if the applicant still holds current employment, how secure his/her job is for future work, and if applicant has been reprimanded or suspended for any reason? If there is no response to your call, keep calling until you get through to a past employer. Employment shows the ability to pay your monthly rent or mortgage payment. A length of two or more years is nice to show stability.

Exception to Employment Length: Monthly income is necessary to insure your monthly bill is paid; however looking solely at the length of employment may not always be pertinent. Many hardworking employees have been downsized over the past 5 years due to no fault of their own, simply a negative economy.

Criminal history: DUIs, Armed Assaults, Robbery, Domestic Abuse, Misdemeanors vs. Felonies, Jaywalking, Parking violations, Etc. Whether renting mansions or mobile homes I am not comfortable with violent criminals or sexual offenders in my property. Make your own decision for this topic and stick to it!

Eviction History: You should not be surprised by a tenant leaving unexpectantly or not paying you on time if that tenant has had a track record of prior evictions. Typically recent past experiences will shed some light on how your newest tenant will behave towards you and the amount of respect they will show you and your property. If your tenant-applicant was evicted from his/her last place of residence or within the last 10 years than it should be no surprise when they stiff you for rent down the road.

Exception to Eviction History: The past is past. If a past eviction is over ten years old I will generally look the other way with no since rental blemishes. If a 30 something tenant-applicant just admits (before I run the background check) that in his late teenage years he was not as responsible as he could have been and got evicted I will generally overlook this blemish.

Sexual Predator: Check the nationwide database at http://www.nsopw.gov. This should have been disclosed by the applicant at the time of submitting the application. This may be a deal breaker for many of us!

Down Payment Ability: Let us be honest, price cures most past blemishes. If a tenant/tenant-buyer can put down a large down payment or deposit most of us have the tendency of looking some past credit or criminal hiccups. Ultimately if you are on the fence about letting your tenant-applicant live in your home simply increase the down payment or security deposit amount until you are happy to let the tenant rent your property

Honesty: I tell every applicant of mine, “We grade on honesty in addition to what we will find on your credit and background checks. Is there anything else we will find when we pull your background report?” If an applicant has had a criminal mishap in the past and admits/explains the situation to me prior to me finding it on his/her background it helps show honesty and I’ll allow the small infraction. If the applicant lies or forgets about his/her 2 felony convictions than I will have no alternative but to think he/she is lying and therefore they will be denied. Never rent to liars!

Credit: Credit is important; don’t let anyone tell you it is not. Credit is the barometer that landlords can use for a quick evaluation to see if the subject applicants may be a potential risk for rent or rent-to own.

Exception to Credit: Millions of Americans lost their homes and jobs during the housing crash in the late 2000’s. Many of these individuals had to foreclose or claim bankruptcy in order to save what little their families had left. It is for this reason ‘Credit’ should be looked at as guideline, not a rule.

In the beginning of my real estate career I was told to write down everything I looked for when screening my rental/rent-to-own tenant applicants. Write down what criteria I would accept and would not accept in a potential tenant/tenant-buyer. i urge you to do the same and write this list down, keep it in a safe spot (say the back of your filing cabinet). If anyone claims you choose another applicant over them simply refer to your qualifications guidelines sheet.

Happy, Safe and Profitable Investing,
- John

Mobile Home Tenant Screening Guide

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Open Question: Can you get into a home with zero down?

September 6th, 2010 |

Author: joe

If your credit is good (700+) is it possible to get into a home with little or nothing down. Im talking about and apt. thats in the 65,000- 85,000 dollar range. If not what would you say is the lowest down they would take on a home that price. This is just hypothetical

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Open Question: How does one go about selling their home and moving to a new home?

September 6th, 2010 |

Author: joe

Hi, I’ve never sold or bought priority. My current our home was inherited when my mom decided to move. Sadly, I really need to move, but I’m unsure of how to go about it. The house also has a mortgage, but I’m not sure if this affects selling the home or not.

Thank you for any advise!

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