A good Commercial Real Estate Mentor can teach you the lessons they have learned and give you the shortcut to building real wealth.
There are many different segments of commercial real estate to choose from. Commercial Real Estate investment strategies work best when they are focused. Your mentor will help you focus and develop your strategy.
You can search online, listen to podcast, watch videos, read books, and get all the answers. If you act, you will likely have some success. But, in order to get over the hump and grow exponentially, you need guidance from someone who has mastered the the skill.
Real Estate is a people business. You need to have people in your network that you can go to when you have questions. Peter Harris is a successful commercial real estate investor who has been mentoring commercial real estate investors since 2003.
Track Record: Is the mentor successful in commercial real estate? Does the mentor own commercial real estate? An active investor will readily recognize potential challenges and help you find the answers. The real estate market is always moving through the cycle. An experienced mentor can help you prepare for the difficult times so you can prosper when others are struggling.
Available: Real estate Investing is full of deadlines and short windows of opportunity. There will be questions that need answers right away. Will your mentor be regularly available to answer your questions. Will they be there after the sale?
Income: Where does the majority of the mentor’s income come from? Is it from selling seminars, books and student fees? Look for a mentor who makes the majority of their income from their own commercial real estate investments.
Teacher: Are they a good teacher? Can they listen to your questions and effectively communicate the answers? If they only tell you what to do and never answer your questions, you will struggle.
Invested: Is the mentor invested in your success? If they only sell you the course, what is their motivation to guarantee your success? Don’t be afraid to share the gain of your deal with the mentor that helped you get it.
Complete: Can the mentor help you all the way through the process to the operation of the property? The real value is created by improving the net operating income, NOI. If the mentor relationship stops once you buy the property, you can miss out on the potential to solidify your future.
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Commercial Real Estate Investing involves many opportunities to make mistakes. Here are 5 mistakes to avoid.
This type of investor believes that the more information they get on the property, the better will be their purchasing decision. Unfortunately, in most instances, that’s not the case. As the saying goes these investors, “Can’t see the forest for the trees.” They are too involved in the details of the purchase that they forget the big picture. Savvy real estate investors don’t get caught up in the minutia. They generally focus on a small subset of issues to get comfortable with, and this determines whether or not they’ll make an offer on a property.
Not only does the detailed oriented approach complicate the buying decision, it also lengthens the time necessary to come to a decision. Many times, another buyer comes along while Mr. Analysis-by-Paralysis continues slogging through the details and “steals” the property away from him. In reality, the seller is tired of all the nitpicky questions the original buyer has bombarded him with. He is relieved someone else is swooping in to save him from the first buyer.
The opposite of the first mistake is the investor who does only a cursory due diligence on the property. This usually takes two forms: the first mistake is not reviewing the historical operating statements and current rent roll carefully. It’s not uncommon that a property’s Profit and Loss Statement is not transparent to the average reader. Lots of important information can be hidden in the property’s operating statements. They need to be teased out by asking the seller good, penetrating questions. For example:
Those are a few questions that may be appropriate to ask.
The second mistake is only doing a cursory physical inspection of the property. If you’re buying apartments, you need to have your building inspector inspect every unit, the roofs, the laundry areas, the attics, the crawlspaces, etc. Find a well- qualified inspector to represent you who will provide a detailed report of the physical condition of the property.
If you are buying a property with a group of investors make sure that those who are in the investor group have the same goals and exit strategy as you do. It’s not uncommon to find out after it’s too late that individuals in the investor group have different motivations for owning the property than you do.
Before you decide to be in an investor group that is purchasing a property, have a meeting with the potential investors. Ask the managing member of the LLC to outline his goals and exit strategy for the property. Also get a feel for whether you would want to be stuck with these investors over the investment life of the property. If you don’t like what you hear from the managing member of the LLC or your gut tells you not to invest with one of the investors in the group because of their abrasive behavior, pass on the opportunity. It’s better that you pass on it than regret it later.
One of the biggest mistakes investors make is not having sufficient cash reserves available for unexpected expenses. This is especially true for multi-tenanted office and retail properties. For example, an investor owns a multi-tenanted office building. He’s owned the building for years and it has cash flowed beautifully. But instead of putting some of the positive cash flow into a reserve account for future needs he puts it all into his back pocket.
Then one day one of his larger tenants moves out and the property no longer cash flows like it once did. Now the owner has to contribute his own cash to keep the mortgage current. He would like to get the vacant space market ready but to do the tenant improvements and pay a leasing commission will cost him more money than he has in his savings. The space remains vacant because he tries to do the leasing himself to avoid paying a leasing commission. And years pass with an under-performing property.
And the sad thing is, it didn’t need to. If the owner had established a reserve account for the eventual cost of tenant improvements and leasing commissions he would have had the funds to get his property re-tenanted.
A 1031 exchange allows investors to defer their capital gains tax when they reinvest their equity into a like kind-exchange. Deferring the payment of your capital gains taxes to a later date is a HUGE advantage to real estate investors. But sometimes investors are so eager to not pay their capital gains taxes that they pay way too much for their exchange property.
If you can find an exchange property at a market price then do a 1031 exchange. But first find out what the capital gains taxes would be if you didn’t do a 1031 exchange. No one likes to pay the IRS if they don’t have to. I get that. But don’t over pay for the exchange property. Sometimes it is better to pay your capital gains tax than to get stuck with a property that will never be a good investment because you paid too much for it.
These are the five mistakes I’ve observed over the years that real estate investors make when buying commercial real estate.
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Learn how a W2 employee’s real estate investment strategy has grown from an accidental landlord to a multifamily syndicator.
Lane Kawaoka is an engineer from Hawawii who followed the normal path. He got a good education, a good job and saved to buy his first house. Shortly after buying his home, he realized that he was so busy working that he was never there.
Checkout Lane’s website and podcast: Simple Passive Cashflow
Lane realized he was paying a lot for a home he was never in. That's when he made the decision to make his home a rental. The result was a lot of extra beer money.
Lane continued to work hard as an engineer, and aggressively saving for another down payment. He was on his way. As time went on, he was no longer able to find properties that could cashflow.
As his real estate holdings continued to grow, so did his knowledge and experience. He realized that appreciation was out of his control in single family rentals. He needed to find cash flow and appreciation he could control.
Recognizing the lack of control in single family is what Lane and most investors realize when they compare single family to mulitfamily real estate.
Multifamily provides multiple benefits when compared to single family real estate. You must get educated In order to recognize the difference. This requires many hours spent analyzing deals to determine when a deal is a real opportunity. is
To learn more go to: simplepassivecashflow.com