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Commercial Real Estate Pro Network

Commercial Real Estate Professionals who work with Investors, Buyers and Sellers of Commercial Real Estate. We discuss todays opportunities, problems & solutions in Commercial Real Estate.
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Now displaying: November, 2017
Nov 16, 2017

If you want to grow your wealth, grow your network.

Vinney Chopra came to America from India with $7 as an MBA student.

He worked as a full time fundraiser and he built his network over the years.  His wife and he invested in some single family properties along the way.  The real estate provided cash flow and appreciated significantly.

Vinney recognized that multifamily real estate was a powerful investment opportunity.  More people were renting and the banks were agreeable to lend for multifamily.   

Then he made the decision to get his commercial brokers license and share what he learned about real estate with his network.  His network wanted to invest with him.  

To date, Vinney has completed twenty-six syndications in ten years.  His investors have been rewarded handsomely.  Some deals have earned annual returns in excess forty percent.

Vinney recognizes that his success is due to his network.  

Build Your Network

If your real estate investment strategy includes growth, you need to grow your network.

Don’t wait, START now.  Talk with everyone and let them know what you are doing.  The more you share, the more practice you will get, and the enthusiasm will build as you find like minded people.  

Investor base

You have to have investors if you want to go after larger properties.  In the beginning, you want to focus on sharing your goals.  You will be surprised who is interested and who has money to invest.  

Regularly call, send emails, meet and educate your network to warm them up for eventual investment with you.  Plan to spend at least four months working and meeting with prospective investors.  You have to get a sense of the number of potential investors and level of commitment they can invest.

Go to free REI groups & Meetups.  If there is not one near you consider starting one.  Don’t forget social media, join groups, ask questions and offer input to discussions.

Build your team

Real estate is a team sport.  You need to have many experts to put together a successful transaction.  

Commercial Real Estate Brokers are critical to your success.  Get to know some.  Let them know what you are looking for.  It will take some time to develop the relationship, but this is important.  When you have a relationship with a broker, that knows exactly what you are looking for, they will share off market deals with you before making available to the public.

When you have identified a market to invest in get to know the local professionals.  A property management firm is key.  Interview several to make certain they are a good fit.  They can also introduce you to other off market opportunities from properties they manage.

You will also need an attorney and CPA to navigate your investment.  Depending on the size of property, investment and number of investors (partnership to syndication) will determine the level of professional services you will need.

An experienced mortgage broker will help you navigate financing the balance.  Depending on the property, the team you have in place and size of the mortgage, will determine the loan programs available to you.

START

As Vinney says, build your network and “Jump into multifamily now” to get the long term rewards available to you.

For more go to:

http://www.vinneychopra.com/

https://vinney-chopra.mykajabi.com/

 

Nov 9, 2017

Fundraising Rules are complex sections of Regulation D that must be followed to stay out of trouble with the SEC.

Syndication is a popular real estate investment strategy for raising capital used by real estate syndicators.  The legal cost to comply with the rules and regulations can be prohibitive.     

Failure to follow the rules can result in being classified as a “bad actor”.  A Bad Actor can be prohibited from future involvement in SEC fundraising.

Amy Wan started Bootstrap Legal, to simplify the legal process and reduce the cost for syndicators.  Bootstrap utilizes technology to expedite the first draft process from client to attorney.  This technology interface saves clients 10-15 hours of attorney time. 

Popular Federal Fundraising Rules for Raising Capital

For discussion purposes, we will focus on the four most popular federal rules regarding raising money from a pool of passive investors for real estate investment.  For each rule, we will look at:

  • Is there a limit of capital you can raise?
  • Ability to market the offer and who you can market the offer to.
  • Estimated cost to set up.
  • Estimated time needed to set up.
  • Is a Business Plan required?
  • What type of financials required?
  • What type of filing is required?

Regulation D Rule 506 B: This is the oldest rule regarding fundraising.  

  • There is no limit to the amount of money you can raise.  
  • You are NOT allowed to market to anyone you do not have a prior relationship with.  If you have a pre-existing relationship, you can invite their participation.  You can include as many accredited investors as you want and up to 35 non-accredited, sophisticated, investors.
  • Estimated cost to set up for a $1M capital raise: $10k - $25k.
  • This can take as little as little as a week to set up if you the sponsor, have all your information together.
  • Do require a business plan.
  • Requires certified financials.
  • Form D must be electronically filed with the SEC.

Regulation D Rule 506 C: Adopted in 2013 from the JOBS Act.

  • There is no limit on the amount of money you can raise.  
  • You are allowed to advertise your offer to anyone anywhere, but you can only accept funds from verified accredited investors.
  • Estimated cost to set up for a $1M capital raise: $10k - $25k.
  • This can take as little as a week if you are prepared and your attorney is available to crank it out.
  • Does require a business plan.
  • Requires certified financials.
  • Form D must be electronically filed with the SEC.

Regulation Crowdfunding: Created by JOBS Act and adopted in 2015.

  • You can raise up to $1,070,000 in any 12 month period.  Great option for a beginner looking for $1,000,000!
  • You can advertise and take money from anyone including non-accredited investors.
  • Does require a business plan.
  • You must have financial statements and legal documents.
  • Offer must be listed on a FINRA listing.   
  • Estimated cost range to set up $5k in legal + $2k for Financials + Listing Service fee (4 - 10% of raise)
  • Estimated time needed; as quickly as you can provide the information to your attorney.
  • Form C must be electronically filed with the SEC.

Regulation A+: Created by JOBS Act and adopted in 2015.

  • You can raise up to $50M in any 12 month period.  
  • You can advertise and accept investments from anyone including non-accredited investors.  It is best for those who have a large network or audience.  
  • This process takes 4 to 6 months.  It is best suited for a fund, ie: online REIT.
  • Does require a business plan.
  • Requires Audited Financial Records and legal documents.  
  • You have to submit to a qualification process with the SEC.

** For the official SEC details, go to:

Success measured by Marketing

In all cases, the success of your fundraising campaign is directly correlated to the awareness you are able to bring.  So, don’t forget the marketing.  If you don’t bring awareness to your campaign, you will not succeed.  

For more go to: https://bootstraplegal.com/

Connect with Amy on Linkedin: https://www.linkedin.com/in/amyywan/

Nov 2, 2017

Depending on what you are trying to achieve will determine which valuation is important.  Appraisal is more art than science.  

Ken Kramer is the Co-founder and Managing Director at Rushton Atlantic, LLC.  Rushton provides third party appraisals, valuations, for its clients; banks, insurance companies, governments, and property owners.

Three Different Appraisal Valuation Approaches

Income: based on the income the asset can produce over the life left in the asset.

Fair Market/ Market: the value agreed upon by a willing buyer and seller in a particular market.

Cost/ Replacement Cost: considers how much will it cost to replace or rebuild the property, building, with a new building.  

The Use for Each Valuation

As an investor, your primary interest is the income the property can produce.  Can the property generate enough income to cover its operating expenses, reserve for capital expenditures, make the mortgage payment, resulting in a profit for you?    

You are likely be interested in the market value as well.  Are you getting a good deal?  Can you sell it for more than you bought it for?

Your lender’s perspective will be more market value oriented.  A commercial property’s value is directly correlated to the net operating income; income minus operating expense.  The NOI divided by the local capitalization rate (cap rate) will provide a market value.

The difference between the market value and the mortgage is lender’s margin of safety.  If you fail to make the mortgage payments, the lender will take the property back through foreclosure.  When this happens, the bank wants to be able to sell the property quickly, which is likely at a discount near the mortgage balance.  .  

The insurance company’s perspective is based on the cost to replace the building you own.  The bank will require that you purchase insurance on the property to protect you and the bank from loss.

The best insurance coverage will provide replacement cost coverage.  If the building is damaged or destroyed, your insurance company will compare the limit on your policy to the amount needed.  Assuming there are no issues, they will pay for the building to be rebuilt, restoring your income and the asset the bank lent against.

Valuations Mean Different Things  

As you can see, different parties have different valuation considerations.  

The buyer, wants to know income value, and the market value.  

The bank wants to know the market value.  

And the insurance company wants replacement cost value.

If a buyer gets a good deal this could be based on the economic potential due to a weak operator or the opportunity to develop the property into something greater.  In either case, there is no reason the acquisition price should reflect the cost to replace the property.

Likewise, market value could be driven by the location.  If the ground is valuable, it could be the driving force behind the value that the bank lends against.  

If the structure is small, and simple, the replacement cost could be very small in relation to the market value determined by the bank.    

The insurance company is not concerned with the income nor market value.  It’s promise to the insured is to replace the property.  

Remember, appraisal is an art form.  Values can move from year to year and Market Value does not equal Replacement Cost.   

For more go to:

https://www.rushtonatlantic.com/

ken.kramer@rushtonatlantic.com

https://www.linkedin.com/in/kpkramer/

Ph: 646-290-5069

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