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.
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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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Multifamily Underwriting is full of opportunities to over or under analyze numbers to determine if a deal is a winner or not.
Michael Becker with Strategic Property Advisors has been both a lender and investor. He has seen the cycle of ups & downs and shared his thoughts on what investors should look for when underwriting a multifamily real estate opportunity.
Value add deals are what every real estate investor is looking for. When you look at rent comps, make certain you are comparing like product. Are you comparing a C class property to a B class property or are you comparing C vs C? If the comparable property not the same class or in the same neighborhood, find a different property.
Taxes are an easy way to upset your deal. You must understand how the local taxes work and will affect your deal. Using the seller tax expense is not reasonable regardless what the selling broker prospectus says.
Cap rate is the measure of market supply and demand. If there are more buyers than sellers, the cap rate will compress. When the reverse is true, the cap rate will expand. What will our exit cap rate be? A conservative estimate is to increase your purchase cap rate by 10 basis points per year held.
Expecting your exit cap rate to be the same or lower than your purchase is unrealistic, but a nice benefit if it happens.
Rent growth is what every real estate investor wants. It is not uncommon to find a property that is under rented with substantial room for rent growth in year one. However, it is unwise to project subsequent years rent growth beyond national averages of 2 - 3 percent.
Expenses should also be projected to increase at similar 2 - 3 percent.
These are some basic underwriting points every investor should consider when underwriting your next multifamily deal.
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Attract investors & raise capital, and grow your real estate portfolio.
It’s been said that you are not a true real estate investor until you run out of money. Because it is only then that you are forced to find willing partners with money if you want to continue growing. The alternative is to go get a W-2 job.
When you run out of your own money, you have to change your real estate investment strategy. Most investors turn to their intimate circle of influence, family and friends, for their initial capital raise. Unless your uncle is Sam Zell, you are going to need to reach beyond family and friends to find more investors to keep growing.
For experienced investors, there is help. InvesTechs.com is a marketing firm focused on helping real estate investors / sponsors attract, find, market to and raise the capital you need to grow. They know your business and how to help you attract capital.
First, build the platform. Investechs meet with sponsors to learn about you and your offering. Then they help you tell your story to attract investors with the capital you need.
InvesTechs will create your professionally branded webpage and all the content pieces you need; written, video, webinars, etc., to clearly communicate your offer and attract potential investors.
Once the material has been created, InveTechs use target marketing to put your information it in front of your ideal investors in your area. These are people with money looking for investment opportunities like yours. By automating this initial communication, you are able to focus your limited time on those investors who are truly interested and more likely to invest.
For these interested investors, you can schedule some calls and face to face meetings to gain further understanding of each other to confirm your offer is a good fit for the investor.
For accredited investors who are ready to commit, Investechs has partners that will qualify and collect the money online. This proven system will make you stand out to potential investors and allow you to continue to grow your real estate portfolio.
For more go to: www.investechs.com
Real Estate Investors must know how to create a successful 1031 Exchange strategy in order to keep their profits.
Karen Templeton with Emerson Equity, is a 1031 strategist. She specializes in Securitized Real Estate Investments (DSTs, TIC, NNN) and the 1031 Exchange to build Real Estate wealth.
The Internal Revenue Service code section 1031 allows investors to sell one property and replace it. Provided the requirements are met, the seller can defer the taxes due, capital gains and recaptured depreciation, on the sale of the property. tax and due upon sale if they reinvest into a “like kind” property.
The 1031 Exchange provides real estate investors one of the most powerful benefits available to real estate investors. Investors can defer the tax due upon sale if they reinvest into a “like kind” property. Regardless of the real estate property type; single family home, duplex, triplex, apartment building, self storage, retail, office, warehouse, etc.
The easiest way is to contact a 1031 exchange qualified intermediary prior to the sale of your property closing. The qualified intermediary will hold the sale proceeds in escrow. When the sale is completed, you have 45 days to identify a replacement property and a total of 180 from the sale to close on your new property.
In order to defer all tax from the sale, you must replace the equity from your sale and the debt you had in place on the prior property.
Like most things in life, exit strategies are rarely considered until they are upon us. Failing to understand the steps of a complicated process can leave you without enough time and cost you dearly. One of the most compelling reasons to invest in real estate is the ability to defer capital gains when you sell.
Plan your sale, and consult with your trusted real estate professionals to create a successful 1031 Exchange.
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Solar Energy is now a legitimate alternative to fossil fuels providing the opportunity for users to reduce their energy cost.
The financing of small to medium solar energy projects has been challenged, until now.
Bryan Birsic combined his finance background and technology to co-create the solar energy financing platform Wunder Capital.
Solar Energy has come so far since the 1970’s. More than just a nice idea to save the planet, today’s solar energy can produce enough power to more than replace a commercial buildings energy needs.
An additional benefit is that the product is warranted for 25 years to produce at least 80% of what it did when initially installed. While this may be enough for the greenest property owner to convert, for most buyers, it’s about the money.
For most projects, the opportunity to save 15% on their energy bill is what drives property owners to make the move to solar.
Unfortunately, traditional financing is not as receptive to small and medium size projects.
Banks fundamentally want to know they will get paid back. Decisions to lend are based on the understanding of the borrower and what the money will be used for. That’s underwriting.
For large projects with credit rated borrowers, there are plenty of lenders willing to lend on the project. The loan is large enough to support the layers of fees for traditional underwriting.
For small projects, there are two hurdles for financing.
The demand for solar energy is strong in areas where energy cost are high. Wunder Capital has partnered with 150 installers in 30 states to provide financing for projects.
The Wunder platform leverages technology to underwrite the project and borrower. This provides quick approval wich Installers like. The platform because it is easy to use and provides fast approval for the project owner.using its understanding of the market and the key indicators they have identified for qualifying borrowers.
Installers like the platform because it is easy to use and provides fast approval for the project owner.
Projects under $2million is Wunder’s target borrower. The average project values is $500,000 and will be installed on a school, municipal or commercial building.
For accredited investors, Wunder Capital provides the opportunity is to invest as little as $1,000. You receive a payment dependent note with a projected yield. Projects average between 6-8% interest for 5 to 10 years depending on the project.
The product can generate enough energy to more than pay for itself. This plus building owners and investors want to promote green energy have made this a viable investment opportunity for investors looking for something different.
Opportunity to save on electricity and own their primary electrical generation guaranteed for 25 years.
Wunder focuses on Solar Energy exclusively.
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Real Estate Investors buy insurance to protect their property from loss, but if you stop there, you could still lose if you don’t protect your assets.
Attorney Scott Smith is the principal at Royal Legal Solutions, a law firm specializing in working with real estate investors.
Insurance is a good first step to protect you from loss when you are first starting out. Once your portfolio grows and you have multiple properties, and significant equity, there are additional asset protection steps you need to take to protect yourself from loss.
Insurance vs Asset Protection
Insurance protects you from negligence. If you are sued for more than the insurance you have, the balance owed can be taken from your assets. If you lose it all, how long will it take you to recover?
Rule #1, don’t lose capital. Getting a poor return is far better than losing capital. If you lose capital, it can ruin you.
Insurance is inexpensive. Don’t skimp on insurance.
Protect Your Assets
Asset protection is not a singular event. It’s a plan that provides protection that creates separation between your investments and from your personal wealth. This structure isolates properties and the operation from you. It’s a way of creating moats with alligators and drawbridges to protect your castle.
Work with a legal professional to create a structure that will provide you the appropriate protection for your investment strategy. Your plan will likely include creating an LLC. When creating an LLC, consider the state you file it in. Certain states provide significantly more protection based on the charging order, compare CA vs TX.
If you do it right, you can compartmentalize your properties and protect them from actions at other properties, and hide your personal information from the ability to be found.
“If you have more than $50k in assets and equity, spend the money to protect your assets.”
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