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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: January, 2019
Jan 31, 2019

What is your Real Estate Investment Strategy?

Josh Welch, founder of Three Pillars Capital, started like most investors.  Single family properties, one at a time. When he figured how long and hard it would be to grow a portfolio of single family, he knew there had to be a better way.  The answer: Multifamily.

Real Estate Investment Strategy

Multifamily real estate investing offers multiple strategies.  First you have to decide if you want to be active or passive with your investing.  Do you go it alone, with partners, or through syndication? These are questions that should be answered before you can really grow.  

Josh chose multifamily syndication.  

Investment Team

Real Estate investing is a team sport.  Three Pillars Capital has a lean team. The members are responsible for Acquisition, Operations, Project Manager, Management and Investor relations.  While the General Partner is Three Pillars Capital, its many of its Limited Partners take an active role in the management. The active limited partners do so because they want to learn the multifamily syndication process.  Some have aspirations of joining future general partners as fund raisers or potential syndicators themselves.

What better way to learn than by doing?

Market Focus

There is no such thing as the “real estate market”.  Every market is a market to itself. Three Pillars is a multifamily syndication firm based in Houston, TX and is solely focused on this one market for now.  This intense focus gives them an advantage over any outside investor. They know the market inside out.

Knowing the subtleties of each neighborhood in a market gives you an edge over someone looking at Loopnet from thousands of miles away.  When you focus on one market, you know which block is the border that separates a good neighborhood from a rough one.

Boots on the ground gives you insight to the micro trends in the market.  Are employers hiring, or laying off? What is the demand for units today? When “For Rent” signs begin to appear, you know it before the reporting agencies declare an uptick in vacancy rate.  Is there a local effort to redevelop a neighborhood that will bring the whole neighborhood up? The value of real time boots on the ground knowledge cannot be underestimated.

Property Asset Class

Three Pillars Capital focuses on Class C multifamily properties with a value add opportunity. The term value add covers a wide range of things.  An ideal opportunity for Three Pillars is a property that is in good physical shape, but has been mismanaged. They can easily create additional revenue and value through rent increases and RUBS with these properties.  Other desirable opportunities include properties that can be easily updated with a thorough cleaning, floor coverings, paint and fixtures.

Biggest Risk

Risk is everywhere.  As an insurance broker, I am constantly looking at the risk of loss and what can be done to manage it. In most cases, there are three strategies available: Avoid, Minimize, or Transfer.  

Going forward, I am asking my CREPN Radio guest to identify the Biggest Risk they face.  

Q: What is the Biggest Risk you face?

A: Fear: Fear can be paralyzing.  Is the market at the top?  Will interest rates rise? What if the market has multiple years of to go and you are not in the market?  You miss out. Do your analysis, be disciplined and take a calculated risk. Don’t let the fear over run you to inaction.


For more go to: www.Threepillarscapital.com

Jan 24, 2019

Real Estate Investor Books provide tremendous value for  knowledge seeking investors.

Consider the bargain found in a book.  In all likelihood, the author has taken years and possibly thousands of dollars making mistakes in order to learn the lessons detailed in their book.  For a small investment, you can learn from their experience, what not to do and what you need to do to achieve success. For this reason, books are a true bargain.

Book Club Interview

Scott Hollister is a former teacher, turned real estate agent, mortgage broker & investor.  He is also the host of The Book Club Interview podcast.  Here he combines his passion for books with real estate investing.  Last year, he read one book per week to prepare for interviews with the author for his podcast.  

Recent interviews include

  • Mat Soresen: Self Directed IRA Handbook
  • David Allen: Getting Things Done
  • Jay Papason: The One Thing
  • Doug Marshall: Mastering the Art of Commercial Real Estate Investing

Regardless of your particular investment strategy; fix and flip, value add, syndication or buy and hold, each strategy shares investing fundamentals.  However where some books dable in a topic, others explore the depth of the subtle important nuances.

The ability to publish a book in 2019 is easier than ever.  Now all authors have an opportunity to publish, it does not mean that all books are exceptionally well written.  Scott finds the books to be similar to the teachers he had in school. While some teachers are more noteworthy than others, he always came away with at least one kernel of knowledge.  The same holds true in the books he reads.

Real Estate Investor Books

During the course of my interview with Scott, he provided a list of books I had never heard of that he recommend on specific topics.  

Regardless if you flip, syndicate, value add or chose to lend money using your 401k, there are some terrific books that dive deep into the topic.  

Some of the books that Scott turned to when getting started and has found interesting:  

Jay Scott

  • The Book on Flipping Houses
  • The Book on Estimating Rehab Costs

David Lindahl

  • Multifamily Millions
  • Emerging Real Estate Markets
  • Commercial Real Estate Investing 101

Brandon Turner

  • The Book on Managing Rental Properties

Ken McElroy

  • The ABC’s of Real Estate Investing
  • The ABC’s of Property Management

Joe Fairless

  • Best Ever Apartment Syndication Book

Gene Trowbridge

  • It’s a Whole New Business; The How-to Book of Syndicated Investment Real Estate

George Antone

  • The Bankers Code

The Biggest Risk

Risk is everywhere.  As an insurance broker, I am constantly looking at the risk of loss and what can be done to manage it. In most cases, there are three strategies available: Avoid, Minimize, or Transfer.  

Going forward, I am asking my CREPN Radio guest to identify the Biggest Risk they face.  

Q: What is the Biggest Risk you face?

A: Biggest Risk: Under estimating the cost to rehab a property and the time needed to complete it.    

Solution: Have multiple Exit Strategies incase it all goes bad.

For more go to: The Book Club Interview podcast

Face Book: https://www.facebook.com/bookclubinterview/

Bigger Pockets: https://www.biggerpockets.com/users/MrHollister

www.davidwesleyrealestate.com

Jan 17, 2019

Property Management is essential to the profitability of all real estate investments, regardless if you self manage or contract to others.

Jason Hull, founder of DoorGrow.com, helps property managers focus, grow and make their business more profitable.  In episode #179, Jason shares his insight into how to identify an exceptional property manager.  

If you self manage, have you considered managing for others?  Jason shares how you can turn the work you are already doing into a profit center when you do it for other property owners.  Property management has desirable business characteristics that every real estate investor seeks: minimal investment required to start, recurring & increasing revenue, clients who rarely leave, and the inside track to true off market deals.  

Successful Property Management

A successful property management company is easy to recognize.  For starters, they answer the phone when you call. They are a sales focused organization committed to the growth of the whole organization.  Happy clients are the standard. They do not run from crisis to crisis. The experienced team can handle any situation and keep both the property owner and tenants happy.  They rely on systems to ensure that success is a constant and they do not recreate the wheel.

Keys to Growing Your Property Management Firm

If you are struggling or considering taking on property management for others, here are some keys to growing your property management company:

  • Forget SEO.  Paying to advertise your business if you are not ready, will cause more bad than good.  Only after you have plugged your operational holes can you consider advertising for additional clients.
  • Brand - It is important to be recognized by the public as a property management firm.  Too many managers market themselves as a real estate firm that primarily sells and dabbles in property management when asked.  Think about who your ideal client is and recognize the value of specialization. If you do property management, don’t just hint at it, own it.  
  • Word of mouth referrals.  Happy clients know others who own properties, and may even have additional properties for you to manage.  If you ask every happy customer to connect online, and like or share your page.
  • Positive online reviews.  A ruined online reputation can be difficult to overcome.  You need a strategy that constantly request and receives reviews from happy clients, both owners and residents.  When prospects are looking online, if you only have negative reviews, you are sunk. But if you have mostly positive with the stray negative review, you will thrive.
  • Price your service properly.  In an attempt to attract clients, too many struggling businesses, price their service too low, attracting only bargain hunters that refuse to spend money to maintain their property.  Properties in poor condition attract the lowest eligible tenants. This is known as the Cycle of Suck. If you are in the cycle, it’s hard work to get out of the cycle. To get out, you have to recognize the value you bring.  You will have to fire clients, and increase your price. In the end it is worth it if you attract and retain quality owners, properties and tenants. Happy, happy, happy!

Now Add More

Once you have a solid base operation that is attracting quality owners and tenants, it’s time to prospect for more.  Reach out to local investment groups and offer to speak. Groups are always looking for someone that can add value to their members.  This is an excellent opportunity to prospect for new clients as a speaker in front of groups. When you present as an expert in front of a group, it leverages your reputation way beyond any outbound cold call will ever do.

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

Podcast: Door Grow Show

Face Book: The Door Grow Club

Twitter: @kingjasonhull

Jan 10, 2019

Self Directed IRA is an option available to all investors, yet it is not widely understood.

If fact, every IRA is self directed.  It is the custodian that limits your options, ie: stock brokers and wirehouses limit your selection to marketable securities offered.  To take advantage of non traditional assets, you need to seek out a custodian that supports investing in non traditional assets.

Employer sponsored plans, ie 401k’s usually have a limited number of investment options that are set the administrators.

Terry White is the founder and CEO of Sunwest Trust, a custodian for almost 10,000 Self Directed IRA’s with an average account balance of $130,000.  Sunwest Trust provides an option for investors looking to invest in non-traditional assets. Unlike traditional broker custodians who charge based on the assets under management, Sunwest Trust charges an annual flat fee for their services.  

Who is eligible for a Self Directed IRA

Individual Retirement Accounts, IRA’s, are non employer sponsored retirement plans.  You choose the custodian. They can support traditional or non traditional assets.

Employees who leave an employer have two options.  They can leave their 401k with their prior employer, or they can roll over the plan to a Self Directed IRA.  

What can you invest in?

The IRS does not provide a list of categories you can invest in.  Rather it specifies a few things you cannot invest in. The list is short.  It includes life insurance and collectibles.

Who cay you invest with or in?

Again, the IRS does not list all of those potential investors you can invest with.  Rather, they specify the those “disqualified” parties which are prohibited: you, for personal use, your ascendents and descendents; your parents, grandparents, children or grandchildren.  You are not prohibited from investing in a brother or uncle, etc.

How it works:

It is crucial that any purchases in your Self Directed IRA be structured properly to avoid potential taxable event or penalties.  You must have the purchase and sale agreement signed by your custodian. If you act as the buyer individually, then fund with your IRA, you will engage in a prohibited transaction.  

When property is purchased, the custodian does so at the direction of the IRA.  The property is then titled to the IRA in care of, the custodian, ie:

My IRA

℅ Custodian

All operating income and expenses go through the custodian who deposits, withdraws from your IRA.  It is best to use a property manager that pays directly to the IRA.

You are prohibited from using the property personally.

Leverage

Using Leverage

Your IRA can elect to use leverage to purchase a property, provided that the loan is non recourse.  Keep in mind, using leverage triggers, Unrelated Debt Financed Income, UDFI. This is a tax. It is equal to the percentage of the income that is attributed to the leverage.  Ie; if you put 25% down, and have a loan for 75%, then, 75% of your income will be taxed at Trust rates.

Lending from your IRA

Lending from your IRA is a very clean way to generate substantial gains.  Hard money, interest only loans, as long as you don’t loan to yourself, parents, or children, is one of the most popular ways to utilize a self directed IRA.

Reporting to the IRS

Each year, the assets or property held in your IRA are reported to the IRS on a form 5498 by your custodian.  The non traditional assets, property, are valued at the year end and compared to last year. All income paid to you by your custodian is reported on a form 1099.

Required Minimum Distributions

When you turn 70 and ½, the IRS requires that you take minimum distributions from your IRA.  This requires planning to do properly. Your options include:

  • Sell a property as you near 70 yrs old
  • Make distributions from the cash flowing income
  • Take a loan against the property
  • Take out an ownership percentage of the property via tenants in common TIC.

Is a Self Directed IRA right for you?

A Self Directed IRA is not for everyone.  If you do not understand what you are investing in, don’t do it.  Get educated, learn the ins and outs, and know what you are doing before you invest.

For more go to:

https://www.sunwesttrust.com/

FREE BOOK: https://www.sunwesttrust.com/contact/

and request Terry’s book,

When all You have is a Hammer

Sunwest IRA is a YouTube Channel

Jan 3, 2019

The Multifamily investing learning curve is steep.    

Real estate investing has been presented in every way imaginable.  But, there is only so much you can learn from a book, a blog or podcast.  To propel yourself on the learning curve, you have to invest your money and time in a deal.  If you like to learn more from mistakes, go it alone. For those who would rather shorten the learning curve, partner with someone who has learned from their mistakes.

Rama Krishna with Zovest Properties LLC did 5 deals from July to December 2018 and acquired 153 units.  His decision to invest in Multifamily was made concrete after realizing the path to real passive income was not to acquire 1000 single family homes.

Lessons realized by investing

Property Class Matters

Prior to investing in a deal, Rama analyzed multiple deals.  The goal was to find a value add opportunity that he could partner with friends and family to acquire.  After acquiring three separate deals, he learned first hand the difference between a C+ and a D property; effort required to collect rent.  

If rent is what drives your revenue, and it’s not easy to collect, that may be the reason the property is offered at a higher cap rate.  Now he recognizes the benefit of a stabilized property and rent that is collectable.

Lesson: If you want regular rent, buy higher class properties.

Value Add Levels

Multifamily investors love to be able to acquire a property and reposition it; increase occupancy, rents, NOI and value.  An inexpensive purchase with lots of potential and heavy lifting, renovation can really limit the cash flow if not properly capitalized.  

If you acquire a property that needs a lot of work, get firm construction estimates and plan your capital requirements accordingly, especially if you are syndicating.  Recognize that a construction loan is expensive, and you have to complete the project as soon as possible so that you can get more competitive long term financing.

The easier path is to find a lite value add property.  These are characterized by a property with dated surfaces and undermarket rents.  Ideally, you can make units more appealing by spending a small amount to get market rents.  

Lesson: Be realistic when underwriting value add reposition play.

Domino Effect

Multifamily investing is people game.  Prior to closing his first property, commercial real estate brokers would show Rama only properties which were listed for sale.  After he was a proven closer, brokers started calling him with off market deals.

Lesson: Be a closer, and the deals will find you.

For more go to:

http://www.zovest.com

Rama Krishna

Zovest Properties

Invest. Earn. Retire.

rama@zovest.com

408 904 9990

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