To master the art of Commercial Real Estate Investing is to recognize and understand that investing is more than just the numbers.
Investing is much more subjective than objective. Each deal lis different. You have to recognize and understand what is important to the parties in the deal. You have to be a good communicator, ask questions and listen in order to understand what is really in play.
Doug Marshall of Marshall Commercial Funding has just released his book Mastering the Art of Commercial Real Estate Investing. He provides some insight about the book and what he has learned as a commercial mortgage broker and real estate investors.
There is so much to learn about real estate. Most investors focus on the numbers. If they go it alone, they learn the hard way, and make avoidable mistakes. Investing in commercial real estate is not something to do for a fast buck. To invest in real estate you have to take a long term view, 5 - 10 years.
Key takeaways from Mastering the Art of Commercial Real Estate Investing
Inside the book you will learn how to:
Inside the book, you will learn how to go about getting commercial real estate financing:
For more go to: http://marshallcf.com/
Multifamily Real Estate Investing is proven to be one of the best ways to create generational wealth.
Vinney Chopra is a multifamily syndicator and previous guest on CREPN #118. Together, over the next several weeks, we will make the case for investing in multifamily real estate. So, if you are not yet convinced, listen and subscribe so that you catch the following episodes.
Single family real estate investing can be deceiving. Each house is its own business. One source of income and multiple potential expenses You may think you are making cash flow. However as soon as an unexpected repair or vacancy comes up, your cash flow can be wiped out instantly.
Multifamily property is its own business. You have economies of scale. There are multiple income streams, one from each resident and considerably fewer shared expenses.
Single family property are valued by the price per square foot that the neighbor received in a recent comparable sale. You have no control over the value.
Multifamily property value is based on the net operating income, noi, earned by the property. This number is divided by the local capitalization rate, cap rate, for the type of property. If the seller has not kept up with rents, or you identify expenses that can be reduced, you can improve the noi and the value of the property.
When financing a Single Family property, the bank looks at you the borrower. Each property has its own loan and as your portfolio grows, your debt to income ratio increases. This rising debt to income ratio will cap your ability to add additional properties and grow your portfolio.
Multifamily financing looks at the property and its ability to generate income. Rents minus operating expenses. This number needs to be at least 125% of the cost to service the debt or the bank will not lend on the property.
Ordinary income vs Capital Gains.
Depreciation is a paper loss you recognize when you file taxes. For residential properties there are two options; straight line over 27.5 years or accelerated through a cost segregation study. Depreciation provides a paper expense against the income generated by the property. This paper expense improves the overall cash flow by reducing the taxable income and thus the income taxes due from the multifamily property owner.
Upon sale, assuming the property sells for more than the purchase price, the depreciation is recaptured. Additionally, investment real estate held over two years is subject to capital gains tax rate instead of ordinary income tax rate. The tax rate for capital gains is lower than the individual ordinary income tax rate.
For investors wanting to defer the taxes, they can elect to defer the taxes by using a 1031 exchange as long as they follow the rules and invest in a replacement property.
For more go to:
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Real Estate Investing is a team sport. From beginner to experienced veteran, real estate investors need vision, infrastructure and process to grow at scale.
If you fool yourself to believe you can go it alone, you will suffer costly avoidable mistakes that experienced investors could have helped you avoid.
All the world’s best performers, regardless of discipline, have coaches or mentors who provide valuable feedback that helps them stay on the path towards success.
The landlordcoach.com is where Mark Dolfini shares his twenty years of landlord experience. shares his twenty years of landlord experience. The wins, losses, and how he mapped his path from a do it yourselfer to a documented success, that is scalable.
The first step is to create the vision, the map. How can you achieve your goals if you don’t know where you want to go. How would you know if you reached your goal if you have no goal? A vague idea is not a vision. You have to get specific. Identify exactly what you want, and by when.
Infrastructure is the foundation, the track for how to run your real estate business. Do you have the right tools? The right tool to make achieving your goals easy. Good infrastructure can appear invisible when it allows your business to run effortlessly. When your business lacks infrastructure, it is easy to tell. Every problem gets a custom solution. This is not scalable.
Process is the locomotive that pulls expectations and behavior to a desired outcome. Process provides the ease so that you can repeat your results. This gives all parties involved a clear expectation for what will happen when they follow the process.
Regardless of your desired outcome, or your position in real estate investing, you can do more with less aggravation if will invest in your vision, infrastructure and process.
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To the untrained real estate investors eye, the financials provide an excellent map of where your business has been. They provide income, expenses and the bottom line telling you if you made money or lost money.
How do you know if a part time CFO is right for you?
Instead of hiring a costly full time CFO, you can benefit from the professional ability at a fraction of the cost by hiring a part time CFO. In most cases, Brent McClure has been able to pay for his services in by increasing his clients bottom line.
An experienced CFO can look at the same information and provide a good estimate of where you are going and what needs to change if you want a different outcome.
In the acquisition, you need to know what the sellers numbers mean. A trained CFO can determine if there any room to cut expenses so that you can improve the net operating income.
During the operation phase, you are dealing with the day to day activities of running a business. Collecting rents, renting units, maintenance, banking, taxes, insurance, creating financial reports, etc. A trained CFO can put into place the needed controls to contain cost and eliminate waste.
They can also prepare standardized financials for you to present to lenders or potential partners when you are looking for additional capital.
Prior to sale, disposition of your property, is the time to keep great records. Record keeping is key to determining the value of your property. If your financial records are incomplete or miscategorized, you will lower the value of your property and leave money on the table.
In each case, a trained professional can identify the expenses that are out of line and provide controls and ways to lower your costs.
For more go to: https://www.brentmcclure.com/
Underwriting your Multifamily Insurance is more than plugging in a number.
Multifamily Investors want rules and systems to make analyzing a deal easy. If it was easy, there would be no value. Insurance is an operating expense that can vary from seller to buyer and property to property. Here are some things to consider when underwriting your multifamily insurance.
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Some insurance companies offer coverage nationwide, but the rates are specific for the territory where the property is located. That’s because different territories have different exposure to weather related events.
Think about it; the midwest has hail and tornadoes versus the southwest which has hurricanes and floods. The northeast has long cold winters with deep heavy snow and the northwest has rain.
Each region has a different set of risk that can cause a claim.
Think about who put the prospectus together. The seller’s multifamily broker. The broker has two jobs. The first is to get the listing, and the second is to get the seller as much as he can.
When writing the prospectus, the goal is to show the highest NOI and value possible. The expenses are likely a combination of actual and industry averages. I’ve seen brokers who will disregard the seller’s insurance cost and use the industry average because it supports a better NOI and value.
What do you know about the seller? Chances are, you are nothing like the seller. Does the seller have multiple properties with the carrier he is currently with? How long has he been with the insurance company? What deductibles, limits and coverage does he have?
All of these are issues that affect the cost of insurance for your property. Unless you are a carbon copy of he seller, you are different, and will likely get a different insurance cost.
Pick your insurance broker wisely. Work with an agent or broker that specializes in multifamily, and you will get the best price the insurance company can offer.
The insurance brokers job is to gather the information. Then create a story for the underwriter that makes them want to apply all the available credits to get the best rate possible.
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