Info

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.
RSS Feed Subscribe in Apple Podcasts
Commercial Real Estate Pro Network
2024
March
February
January


2023
December
November
October
September
August
July
June
May
April
March
February
January


2022
December
November
October
September
August
July
June
May
April
March
February
January


2021
December
November
October
September
August
July
June
May
April
March
February
January


2020
December
November
October
September
August
July
June
May
April
March
February
January


2019
December
November
October
September
August
July
June
May
April
March
February
January


2018
December
November
October
September
August
July
June
May
April
March
February
January


2017
December
November
October
September
August
July
June
May
April
March
February
January


2016
December
November
October
September
August
July
May
April
March
February
January


2015
October
September
August
July
June
May
April
March
February
January


Categories

All Episodes
Archives
Categories
Now displaying: 2019
Apr 11, 2019

Seller financing is a viable strategy for real estate buyers and sellers.

Since 1986, Larry Goins has been buying and selling real estate.  He has bought and sold residential, multifamily, commercial, developed subdivisions, mobile home parks and more.  For financing, he has utilized multiple methods including traditional banks, partners, hard money, lease options and seller financing.

Generating Prospects - Sellers

To generate multiple leads, requires a sophisticated marketing campaign utilizing postcards, Facebook, and pay per click Google Ads.  This is all in an effort to make the phone ring. When the phone rings, a screener will qualify the opportunity. If it sounds plausible, Larry makes a call and offers a full price cash offer.  

The typical marketing campaign numbers look like this:

  • Postcards mailed to identified suspects: 25,000 per month
  • Inbound calls from postcards: 200 per week / 800 per month
  • Average response: 3%
  • Results: 5 - 20 deals per month

Developing a Buyers List

Developing a large buyers list is key to your success as a wholesaler.  More potential buyers means more success. Larry and his team utilize the following methods of marketing:

  • Bandit signs: 25-30 around the neighborhood where the property is located.
  • Local Facebook groups
  • Craigslist
  • Website
  • Bigger Pockets

For each method, they collect emails and grow their email list for the next property they have for sale.

Wholesaling

Wholesaling is an simple way to make money without the need for a lot of capital.  Larry authored the book, Getting Started in Real Estate Day Trading and has students from around the world employing his system.

The ideal property will be purchased well below market, but that is because the seller has problems.  When you find the person with a problem who is willing to part with their property for very little, you have the first ingredient necessary to make a profit.

As soon as a property is put under contract, the marketing team takes over.  First they go to the property and take numerous photos of the property including all interior, exterior and building systems.   Next they market the property to their buyers list.

The most efficient model for wholesaling provides for a purchase and sale on the same day, using none of the wholesalers money.  The net result of a successful wholesale is a profit after selling a property he never had to invest in, but found both the seller and the buyer.  

Seller Financing

There are two sides to Seller Financing.  

When you are the Buyer:

If a Seller does not agree on your offer price, but they are interested in continuing to receive monthly income, Seller Financing can work.  When negotiating with a seller, her are some key points to make with the Seller,

  • They will continue to receive monthly payments,
  • You will take care of insurance & taxes.
  • They will no longer have to deal with tenants,
  • You will help reduce their capital gains tax using an installment contract.  

From here, you can either operate the property as a rental, sell to a new buyer who will assume the loan after you collect a down payment.  For example, you buy at $35,000 and sell for $45,000 with $10,000 down and assign the mortgage to the buyer.

Another way is to utilize “wrap mortgage”.  This is when you acquire the property on terms from the seller, and then sell the property on contract to a buyer.  To make this work, you need to acquire for a low monthly payment, and then sell on a higher monthly payment. You make the money on the spread.   

When you are the Seller:  

If you have the financial ability to acquire a property, seller financing is a great way to make substantial returns.  Larry and his team try to buy a property for 30% of what they can sell it for on contract. He calls this “Flip to Riches”.  

Best outcomes:

  • If the buyer does not make their payments, you foreclose and resell the property and collect another down payment.
  • If your buyer refinances, you get paid off.
  • Buyer pays as agreed.

In all cases, you have to be transparent with the seller about what your intentions are.

BIGGEST RISK

Each week I ask my guest what is the Biggest Risk they see that real estate investors face.  

BIGGEST RISK: Lack of education.  If you don’t know what you are doing, you will get burned.   

How to manage the risk?  Get educated. Read books, listen to podcast, get a mentor.  

 

For more go to:

https://larrygoins.com/

Call: 877-LAR-RYGO

Apr 4, 2019

A Spendthrift Irrevocable Trust might just be the the asset protection strategy you have been looking for.  It allows you to own nothing, but control everything.

Bruce Mack is a real estate investor, Licensed Financial Advisor and student of how Trust work to provide maximum asset protection and tax benefit.  He utilizes Spendthrift Irrevocable Trust offered through Platinum Trust Group.  His primary clientele are Real Estate Investors.

When Insurance is Not Enough

Insurance is a recognized first line of defense for protecting your assets.  But when you read a policy and find the exclusions, you realize there is a potential gap in what could happen, and the coverage the policy provides.  Bruce has multiple examples of clients who found out the hard way that their insurance was not enough. And, because they had assets, the court award required that their assets be liquidated.  Here are a couple of examples:

  • Client owned rental homes.  When their son was at fault in an ATV accident, they were forced to liquidate their assets to pay for the damages beyond what their insurance provided.  They loss 20 residential houses.
  • A real estate investor managed his own properties. When he was found guilty in a wrongful eviction lawsuit, his liability insurance was limited in its response.  He lost 150 rental houses and 2 apartment buildings.

But I Have an LLC

That does not affect me because, I have an LLC.  When you use an LLC, C-Corp or S-Corp to hold title of your real estate, you separate you, the individual, from your business that owns the real estate.  This is referred to as the “corporate veil”.

This is a fairly straight forward strategy. If you own multiple properties, for additional asset protection, you may be advised to create multiple separate entities for each property,  In theory, this makes sense, however, the cost to maintain and operate multiple entities is not cheap.

For each entity you create, you are required to pay separate state business filing fees.  This is in addition to the tax return required for each entity. Multiple state fees and tax returns add another level of expense that reduce your profits.

On top of the fees, you must follow the formalities outlined in the corporate operating agreement and bylaws.  Failure to follow these can blur and lessen the the distinction between you and the entity. When opposing counsel has been able to prove the lack of structure and record keeping, they have been able to pierce the corporate veil and hold the individuals personally responsible.  This opposing counsel strategy is referred to as the “alter ego”.

Protection Provided in a Spendthrift Irrevocable Trust

Bulletproof asset protection.  Your assets are protected when placed in a properly structured Spendthrift Irrevocable Trust.  This deters opposing counsel from suing. If the opposing counsel were to sue and win a judgement, they would place a lien against the trust.  This lien would be satisfied when the trust is liquidated. That happens 21 years after the last beneficiary dies.

Tax advantages for the trust.  When your assets are placed in an irrevocable trust, all ordinary and capital gain income from rental properties go into the trust. Tax is due when one of two things happens:

  1. Beneficiaries receive distributions.  The beneficiaries are required to pay income tax on the income they receive from the trust.
  2. When the trust is liquidated.  The Spendthrift Irrevocable Trust states that this happens twenty-one years after the last beneficiary has passed away.  At that time, the trust dissolved and any liens are settled and taxes paid.

Property held in a irrevocable trust can prevent the need for a 1031 exchange to avoid the taxable event.  A trust can hold assets, receive income from those assets and pay the operating expenses required to maintain the trust.  Only the distributions paid to the beneficiaries are taxed at the ordinary income level of the receiving beneficiary.

Who is the Spendthrift Irrevocable Trust for?

If you are selling an asset, or buying additional real estate, you should look at the protection provided through an Spendthrift Irrevocable Trust.  Both asset protection and tax savings are reasons to look into the benefits of irrevocable trust.

For more go to:

www.platinumtrustgroup.com/crepn

www.platinumtrustgroup.com

BIGGEST RISK

Each week I ask my guest what is the Biggest Risk they see that real estate investors face.  

BIGGEST RISK: The chance of being completely wiped out due to an unforeseen event.

How to manage the risk?: Follow the advice I give my clients.  I have placed all my assets in an Spendthrift Irrevocable Trust.  

Mar 28, 2019

Multifamily Asset Management is the rarely talked about, but vitally important, required aspect of multifamily investing success.  It is key to realizing the profits investors expect.

Vinney Chopra shares some of the critical steps successful operators take to  make their multifamily investment operate to achieve peak performance and maximum returns for their investors.  

What is Multifamily Asset Management

Multifamily Asset Management is not property management.  Asset managers manage and work with property managers. The asset manager is hired by and reports directly to the syndication principal / sponsor.  They are not responsible for interacting with investors.

or Originally, Vinney sub contracted out the property management.  After some dissatisfaction, Vinney’s company, Moneil took the management in house.

Asset Management Duties

Asset managers engage weekly with property management to keep them focused on the immediate operational task at hand.  Additionally, they make certain progress is being made towards the end goal. These calls can occur in person, but more often is done through phone or video calls.  

Each weekly call will address specific key performance indicators including:

  • Collections
  • Utility collection and RUBS
  • Delinquencies in rent
  • Occupancy and Vacancy reports
  • Price sheet, reflecting unit rent prices
  • Budget versus actual income and expenses
  • Capital improvement projects
  • Renovation Schedules, detailing the work needed to complete so the unit can be rented.  If work cannot be performed by property management staff, subcontractor proposals are sought.  
  • Vacancies, unit turns, collected rents, delinquencies, rent increases, vendor contracts, and capital improvement work schedule for larger value add projects.

Property Management Duties

The property management team consists of the following members:

  • Community Manager: leader of the property management staff.
  • Lead Maintenance / Technician: reports to Community Manager.
  • Assistant Community Manager: is a Community Manager in training and assist the Community Manager in all aspects.
  • Porter / Helper: Assist the Lead Maintenance Technician.
  • Make Ready Person: Responsible for turning units between residents.

The number one responsibility of the Community Managers team is leasing units and rent collection.  This is achieved through regular communication with the residents so that they understand residents intention regarding the renewal of their rental agreement.  

Marketing available units using all of the social media websites that target people looking for apartments in your neighborhood.  There are several tricks management must be savy to in order to keep your property as a top offering. When these are employed, your property is featured more prominently and you receive multiple inquiries from prospective residents.

Additionally, the management team must deliver the service from their customers, the residents.  This means promptly attending to the service requests, and following up with the residents to gauge their satisfaction.  

Paying attention the physical appearance of the grounds goes a long way to communicating pride in the property.  Management must walk the property daily and recognize and correct any problems or potential problems as soon as possible.

This level of care can provide referrals from your happy residents to their family and friends who can become future happy residents. Only when you are in tune with your residents can you achieve expected rental retentions.

Additional Management Duties

Management must constantly evaluate their staff and answer the question, “Do we have the right people in place and the needed equipment to complete the job?”

When your team acquires or is working to sell your property, your management team is critical to the transition.  

Prior to acquiring a property, It is important to establish accounts with all utilities and vendors to make certain all of the services continue and there is no interruption in service.

When you are ready to sell, your property management team must make certain your rents hold steady.  Any dip in occupancy can create problems with valuations and the sale. Your property management will be the face for your property and company when dealing with open houses, and property tours for commercial real estate brokers and investors.   

Community

When Asset Management and Property Management work together, they can create an inviting community for both current and future residents.  Here are some of the physical property traits Vinney has employed that work.

  • Make the grounds as attractive as possible with well trimmed hedges and landscape lighting.
  • Four large flag poles that fly, the US, State, Property & Seasonal flag
  • Amenities and reasons that create reasons for residents to interact with staff and fellow residents.  These include: inviting club house with flat screen TV’s, cookies, water and Friday morning Breakfast on the Run.
  • Dog parks, more and more residents have dogs, and this is an inexpensive place for residents to inner act with other residents and get to know each other.

BIGGEST RISK

Each week I ask my guest what is the Biggest Risk they see that real estate investors face.  

BIGGEST RISK: Declining Occupancy.  If occupancy goes down just a few percent, it can really hurt your

How to manage the risk?: Do not hesitate to act.  Provide incentive to property management to keep the property occupied at and above 95%.  For instance, the office is closed on Saturdays as long as the occupancy is above 95%.

BONUS RISK: Delinquencies;  Why is the rent not being paid on time.

How to manage the risk?  Pay attention to the rent as a percentage of income.  If the residents do not make enough income, they cannot easily pay the rent.

EXTRA Bonus Risk: Walkways must be free from trip hazards.

How to manage the risk?:  

Bring in someone from the outside to inspect the condition of your property.  When you are looking at your property day in and out, you can lose sight of certain conditions that need to be addressed to avoid any needless injury, claim or lawsuit.

 

For more, go to:

www.vinneychopra.com

vinney@vinneychopra.com

Text: LEARN to 474747

Mar 21, 2019

The lessons learned while growing from 2 to 2400 Multifamily Units are many.  

Growing up, Ivan Barratt saw his father collect rent checks from renters and recognized that getting paid from renters was a great way to get paid.

After college, Ivan started his career in real estate working for an Indianapolis area developer.  While working for this developer, he learned all facets of real estate development, and made a lot of money.  His real estate fortunes seemed certain.

When the 2008 crash happened, everything stopped.  With the path to easy riches closed, Ivan had to find another way to create his real estate fortune.  

Through the Wreckage

When the dust settled, Ivan found himself several hundred thousands dollars in debt.  Instead of taking the easy way out, filing bankruptcy and walking away from his pile of debt, he committed to repay all his debt.  

To survive the crash, Ivan and his family had to make some sacrifices.  Without the big paycheck, they had to reduce their living expenses. They turned their luxury condo into a rental and moved into one of their rentals.  

Real Estate sales had provided him a tremendous paycheck, but it could be feast or famine.  Recognizing he needed some predictable, recurring income, Ivan got out of development and started a property management firm in a spare bedroom.    

Lesson: Live within your means.

Property management gave him the chance to create recurring income, which was great.  At the time, there were lots of owners who could not sell their homes and became reluctant landlords.  They needed property management.

In addition to creating recurring income, he recognized that property management gave him contact with owners who wanted out.  These relations with frustrated owners gave Ivan first dibs on investments, sales and purchase opportunities. This additional income provided him the funds needed to pay off his debts which allowed him to keep his credit and reputation in tact.  Ivan credits much of his success to his decision to pay off his debts. Making good on his debts kept him in good graces with the local power brokers. Because he made good, these contacts rewarded him with opportunities he would have missed had he elected to not pay back the money.  

Lesson: Make good on your commitments.  

The Journey to 2400 units

Where do you start on your journey to 2400 units?  You start with the first unit. The crash of 2008 was a humbling experience for Ivan and thousands of other investors.  Once he came to terms with his predicament, he realized if he was ever going to accomplish his goal of thousands of units, he had to get the first unit.  

Lesson: The next deal is the most important deal.

Ivan credits his father’s interest in motivational books and tapes for helping him with the needed mindset to stay positive.  Some that stuck with him; “The journey to 10,000 units starts with the first deal.” “Focus on what has to be done today.” “Do what others won’t today so you can do what others can’t tomorrow.”

Managing Growth

Today, his company, Barratt Asset Management, BAM, manages over $300 million assets under management of which $210 Million are owned through Syndication.  BAM is a vertically integrated company, providing property management, and syndication of multifamily properties.

The challenge of managing people and working to keep them motivated is a task much more difficult than doing a real estate deal.  Allowing the little mistakes to happen and your support staff to learn and grow from their mistakes takes a lot for an owner who is used to doing everything them self.  However, it is absolutely necessary if you want to grow.

Lesson: Mistakes will happen and are necessary for learning.  Allow for mistakes.

By delegating and trusting others, Ivan is able to focus his visionary talents.  He is able to work on the business, and practice what he is truly gifted at, attracting capital and investors.

In order to become a big company, you have to first see yourself as a big business that is currently small.  This mental shift is key. You have to create a vision of where you want to go and communicate this to others, employees, investors, clients, etc.  Without a vision, you will stay small and own a job at your small company.

BIGGEST RISK

Each week I ask my guest what is the Biggest Risk they see that real estate investors face.  

BIGGEST RISK: Debt Maturity Risk - If capital markets dry up and you cannot get financing.

How to manage the risk?:  Long term financing w/ fixed interest rates - HUD market rate loan with an interest rate lock for 35 years.  HUD provides financing up to 85% to cost including: acquisition, renovation, reserves, all in.   

For more go to:

www.ivanbarratt.com

www.ivanbarratteducation.com

www.barrattassetmanagement.com/

Ph: (317)762-2625

Mar 14, 2019

Technology is disrupting Multifamily Property Management, and the results are impressive.  

Neal Bawa, founder of Grocapitus Investments and Multifamily U is a technologist by education, who came to real estate investing out of necessity.  It was when his boss elected to purchase a building rather than continue to pay rent, that Neal was forced to learn on the fly how to make the new property ready before their lease expired and penalties ensued.

Like most of us, the lessons learned under pressure are permanent.  Having caught the bug for real estate, Neal first invested in single family homes, but soon realized the challenge to scale.   Then he found and invested in thirteen syndications as a passive investor. However, he was not getting the returns he expected.

Realizing there was a vacancy problem that was preventing him and his fellow investors from receiving distributions, he asked the syndicator if he could market for prospective residents.  Soon, he developed a system that was generating qualified prospects to managers who were able to fill the vacancies. When the property filled up, investors started receiving distributions.  The increased NOI drover the value up, and again made investors very happy.

When the asset managers asked Neal what he wanted in return, he asked for permission to participate in their weekly asset management calls.  They told him the calls were boring, full of acronyms, and he would not like them. But he did.

Over the course of 200 such calls, he got a front row seat to the inner workings of multifamily operations on a day to day basis.  He realized that each person in the operation had a particular expertise, but no one person, knew all the pieces. Except for him, the note taking technologist.  Neal realized he had learned something that not everyone else knew.

To make certain he did not forget these newly learned lessons, he started a wildly successful Meetup group in San Francisco where he shared everything he learned about multifamily investing.  Soon the members became motivated, and wanted to invest with Neal. He had the knowledge and the support to become a multifamily syndication sponsor.

Technology Disrupts Multifamily Property Management

In the 200 weekly operations meetings, Neal recognized some limitations in the existing property management system for filling vacant units.  As a technologist, he identified the choke points where it was time for technology to disrupt the status quo.

Neal developed a technology hardware and software system with virtual assistants that attract, screen, schedule, and remind prospective tenants of their scheduled tour for his properties.  For 2018, his system attracted 30,000 qualified resident prospects for properties he owns. This flood of qualified prospects accounted for 64% of all leases signed. Now, property managers are able to focus on showing units, signing leases and do more operational tasks without the distraction of marketing for empty units.  

Additional Value from Technology

Now that the units are full, Neal realized a second opportunity to leverage his technology and disrupt the income stream to add more value to the property.  There were missed sales opportunities for add ons like carports, washers & dryers, etc. Neal observed that property management income was a percentage of all rents collected.  While they were focused on a big number like the apartment rent, they did not get motivated about a little number that would pay them an additional $1.20 commission for leasing a carport for $40 per month.  

For Neal and his fellow investors this lack of focus was keeping them from realizing a significant long term value.  The $40 per month carport rent was $480 per year in income. That same $40 per month translates, at a 6 cap rate, to an additional $7,680 in property value per carport!  If you have 100 carports, that’s as much as $768,000!

So, how do you get someone to focus on something they don’t value?  You don’t. Instead, Neal again leveraged his technology and created a follow up task for his virtual assistants.  Now, the virtual assistants contact the new residents to make the additional sales. And his property managers take care of what they do, lease, collect rent and turn units.

Multifamily Lessons Applied

Since these beginnings, Neal started Multifamily U and Grocapitus Investments which are education and multifamily syndication investment platforms.  Today, he syndicates multifamily properties all over the US and continues to apply the lessons he learned, and the technology to make his properties more profitable.

BIGGEST RISK

Each week I ask my guest what is the Biggest Risk they see that real estate investors face.  

BIGGEST RISK: Opportunity Zones.  When millions of dollars are pumped into distressed areas with no fundamentals for growth, why will these areas become successful?

How to manage the risk?:  Don’t invest as a Class C area with no growth potential solely as a strategy to avoid paying capital gains taxes.  Be wary of investing in an opportunity zone if you do not understand the fundamentals in the area.

For more go to:

https://multifamilyu.com/

https://www.grocapitus.com/

Mar 7, 2019

Financial Freedom is the end goal for every working American.  Some day, you hope to have enough to feel secure that you can live comfortably without the stress or worries or need to continue to work.

Dr Ross Stryker realized that working as an orthodontist until he died was not the path to financial freedom.  The decision to go to a financial freedom seminar about real estate, changed his outlook forever.

Wall Street vs Real Estate

The American worker has been indoctrinated to regularly invest in the stock market for retirement.  Buy dollar cost averaging, starting aggressive, and as you reach the age of concern, dial back the risk to some municipal bonds that pay 3 to 4 percent.  Then when you retire, withdraw up to 4% and live happily ever after.

If you study this model closely, you will come to the conclusion that this will not allow you to continue to live the lifestyle you are accustomed.  You need to consider an Alternative Investment, maybe cash flowing real estate.

A Better Way

Passive income is the goal.  In real estate, the opportunities for passive income are numerous.  You can buy single family turn key properties, invest in note funds, etc working with people dialed into the market providing returns well above 3-4%.  This is a good option for someone looking for more control.

However, Ross recognized the challenge of scale that exist when investing in single family properties.  He liked real estate, but really wanted to be able to scale. Something he could share with others.

Self Storage

After sifting through multiple real estate asset classes, multifamily mobile home, retail and assisted living, he landed on self storage.

While Self Storage is a want instead of a need.  He recognized a positive characteristic about Self Storage: Americans love our stuff.  In good times, we buy stuff. In bad times, we don’t want to get rid of our stuff. As long as we have more stuff, the demand for self storage will remain strong.

Dialed into the asset class, he had to determine where to invest.  Looking for opportunities, his team identified that coastal and large metro areas were heavily saturated with existing self storage.  The underserved opportunity exist in the midwest secondary, tertiary and rural markets.

Opportunities in Self Storage

There are multiple ways to get into self storage.  You can buy an existing property, build new, or convert an existing vacant property.  

Limited supply is another benefit.  Self storage has been identified by many cities as unwanted.  They have passed building ordinances, rules and zoning laws, etc to make developing any additional self storage difficult for any future potential competitors.  

Operation of Self Storage

For passive investors, the obvious choice is to utilize third party management property management.  There are multiple name brand professional operators that have all the expected marketing and infrastructure to attract and manage clients and send owners the check.

BIGGEST RISK:  Each week I ask my guest what is the Biggest Risk they see that real estate investors face.  

BIGGEST RISK: Going it alone

How to manage the risk:  Get involved in a group of like minded investors and or mentor group.

BONUS RISK; Don’t go to big too fast.

How to manage the risk:  Start with something small that is manageable.

 

For more go to: https://www.smartassetopportunities.com/

Feb 28, 2019

Multifamily Due Diligence for Class C property investors can be the difference between paying extra attention prior to the sale, or paying dearly for unplanned capital improvements after the purchase.  

Matt Hawley with Multifamily Inspection Services, provides some insight to help investors avoid costly, unplanned expenses.  

Multifamily Due Diligence

The Due Diligence clock starts as soon as you have a signed Purchase and Sale Agreement.  Typically, the seller will agree to 20 to 30 days for you to inspect the building for its physical condition.  This is your chance to determine the condition of all systems, and determine what expenses you need to plan for or negotiate away prior to sale.  NEVER, NEVER, NEVER skip inspecting each and every unit.

What to Look For When Walking Older Properties

Value Add vs Capital Improvement

Most Class C investors hunt for a property they can make improvements to that translate to increased value.  Management, rent increase, renovations, add dog park, RUBS, charge for storage, etc all translates to an increased NOI, and ultimately a higher value.  

Unfortunately, capital improvements like a new roof, plumbing, electrical and HVAC systems don’t give a boost to the rents.  These are bare essentials included in a place to live, and therefore will not improve the operational value of a property.

Therefore, it is important for any new investor to recognize the physical condition of the property prior to sale, so they can plan and budget accordingly for the updates needed to the systems.

Primary Building Systems

There are four primary building systems which are critical to the proper function of your multifamily property;  Roof, Electrical, Plumbing, HVAC. For pictures and descriptions of each potential system, click here: What to Look For When Walking Older Properties.

Roof

A good roof keeps the water out and the inside dry and free from water damage.  When inspecting the roof, look for any signs of improper installation. Inspect appearance, flashing, and the general condition of the roof.  

Stains on a flat roof suggest  pooling of water that can be problematic.  If water is unable to properly drain from the roof, it will find seams and travel to places not intended causing potential damage on the inside of your building.

Get a professional roofing contractor to provide a condition report and determine the expected life left in the roof.  When budgeting you should determine the cost of a roof replacement, and amortize this over expected life of a new roof and account for this amount to your annual capital replacement reserves.

Electrical

Your electrical system can be the difference between affordable insurable or a non insurable property.  For pictures of some problem systems,

click on What to Look For When Walking Older Properties

There are multiple things to look for when inspecting a property:

  • Electrical panels: Throughout time, there have been different electrical panels that have been used in construction that ultimately were determined to be problematic and potential fire hazards.  Two specific panels are: Federal Pacific with Stab lok Breakers and Zinsco / Sylvania.
  • Aluminum wiring: During a brief time in the 1970’s, the cost of aluminum was less than copper.   This cost differentiation caused builders to use aluminum wiring. Over time it has come to be a potential fire hazard.  The correction is to have the ends pigtailed to copper at every connection.
  • Amperage to the unit; some insurance companies require a minimum of 100 amps to the individual unit.  If the building units have less than 100 amps, you will need a written report from a licensed electrical contractor confirming the electrical system is in good working condition.

If any of these conditions are present, you will need to either budget for the correction, or negotiate the repair or cost of the repair form the seller.

Plumbing

  • Type of drain pipe: If you have cast iron drain lines, have the lines scoped to determine the condition of the pipe has any corrosion, or has been compromised.
  • Hot Water tanks; If they are all the same age, you need to plan for replacement.
  • Supply lines; Polybutylene is a problem pipe that leaks and causes damage.  Pipes are gray plastic with PB printed on the pipe. If you see any polybutylene, you need to get an estimate for replacement and reserve for this or negotiate the price of repair or a discount with the seller.

HVAC

  • Recognize the age of the system and get an estimate of how many years are left in the system.  
  • Is the system clean?  Does it appear to be well maintained?  Is the evaporator coil clean? Is the condenser clean?  Is the condensation line clogged or is it able to drain properly?
  • The AC units affect the air quality and can negatively affect your tenants health.

Exterior

  • Windows and doors; look for water intrusion.
  • Settlement; look for for cracks in the foundation or slab floor of more than 1/8th inch difference in elevation
  • Vegetation on the roof or against the building must be trimmed away.
  • Spindle width on railings; should be no more than 4” between the post.  Any larger opening and a toddler can fit between and potentially fall.

Interiors

  • Stains: look at the ceilings, and around the windows.  These can be a clue to water issues.
  • Electrical: are there any overloaded outlets?  This can be a sign that the electrical system is not working properly and should be questioned.
  • Shower walls: if you press on the walls and there is any give, it could be a sign of trouble.  
  • Cabinets: what is the condition?  Do you need to plan on updating the cabinets?

BIGGEST RISK:  Each week I ask my guest what is the Biggest Risk they see that real estate investors face.  

Not properly doing your due diligence.  If you have deal fever and don’t fully invest the time, money and effort into your the property due diligence, you will pay the price.

Stress test your rents for what if there is a change in occupancy, etc.  Will you be able to hang onto your property?

 

For more go to:

www.multimamilyinspector.com

matt@cfigwealth.com

www.cfigwealth.com

Multifamily Inspection Services

Feb 21, 2019

Syndication Profits are proportionally the greatest when the property is sold.  

Multifamily Syndicator, Vinney Chopra, takes us through a recent property sale, providing insight to investor earnings, including payment during operation and through the disposition.

Preferred Return

Most multifamily syndicators provide a level of preferred return to the investors from operating the property.  These proceeds are distributed either monthly or quarterly. Vinney pays his investors quarterly, providing a level payment for three quarters, with bonus returns paid after the fourth quarter.

When you buy a value add property, you have to implement your value add plan in order to increase the value.  Renovations, rent increase, etc, are all examples of ways to increase the net operating income and the property value.  

Syndication Profits When You Sell

When investors invest their money into a syndication, they are informed of the exit strategy and a  window of time for when the property will likely sell. It is upon the sale of the property that the majority of the syndication profits are realized.  

In a recent sale, Vinney received a Broker’s Price Opinion that the value had increased over $3 million since he and his investors purchased the property.  When the investors learned of the valuation, they elected to sell.

Once the decision to sell is made, investors are made aware that the quarterly distributions will cease until the property is sold.  This is a measure to conserve cash incase there are some buyer due diligence requirements to complete the sale. This avoids the need for a cash call from the sellers and or a discount at closing.

The sales process can take several months.  For this reason, it is very important to vet the buyer’s ability to close.  If you chose the wrong buyer, and they fail to close, you can lose market time, and frustrate your investors.  

When done properly, the syndicator buys a property, implements the value add plan improvements, increases the rent, noi and market value.  The cycle is completed with a successful sale. This makes investors very happy, and likely willing to invest with you again.

For more, go to:

www.vinneychopra.com

Text: SYNDICATION to 474747

Multifamily Investment Syndication

Feb 14, 2019

Self Storage real estate investing is an attractive alternative to low cap multifamily.  

Scott Krone, Managing Partner of Coda Management Group, is an architect and developer based in Chicago, IL.  He has experienced the boom, bust of residential cycles..  Recognizing the compressing cap rates in Multifamily as a sign that values would likely not increase, he sold his entire multifamily portfolio.  Now his focus is finding underserved markets with unmet demand for self storage and filling this gap.

Self Storage Investment Strategy

Before you invest in self storage, it’s important to get educated on the basics.  For starters, the property values and capital required to get into self storage is a fraction of what is needed to get in to multifamily.  Otherwise the investment works similarly, NOI, cap rates, etc.

Traditional self storage is located near the edge of town  Usually a series of one story buildings with exterior entrance for all units surrounded by a perimeter fence.  

Scott creates class A self storage facilities in underserved urban markets.  The ideal opportunity is an existing building with current zoning in place that allows for self storage.  An ideal property is 80 - 100,000 sq ft building with high ceilings. When completed, the user will be able to drive into the facility to load and unload their vehicle, protected from the weather in a safe and secure place.   

By purchasing existing structures with zoning already in place, Coda is able to quickly close on a property, renovate and get the facility open to generate income.  This is a significantly shorter timeline than what is required for ground up construction, which could literally take years.

The building renovations typically include: new roof, HVAC and lighting.  Like any market, understanding the opportunity better than your competition is key to your success.  Scott has been able to leverage programs like the Department of Energy PACE  program which have provides unique low cost financing for energy savings updates.

Renovating versus New Construction

The difference between renovating and new construction are staggering.  

Timeline

The risk timeline  faced by a developer for a new construction are frightening, especially if you look back a to the last market crash.  Consider the risk of what could happen if your project takes longer than you planned and you miss the market opportunity entirely.  You could be left with a building that you cannot rent or sell.

Starting with an existing building significantly shortens the time line from start to completion.   Depending on your renovation schedule, you can be generating income in a fraction of the time it takes to develop a new construction project.

Value

The numbers really make sense when you compare to the cost of new construction.  If you buy a vacant building for cheap and add the cost of renovations, they are a fraction of the cost of new construction.  As Sam Zell illustrated in his book Am I Being Too Subtle, when you can purchase an existing building for substantially less than you can build, that’s a good value.

Successful Renovation Conversion Projects

Managing Self Storage

Coda sub contracts the management to REITs with self storage portfolios.  These are nationally branded, with all the marketing and systems in place to create a top performing property.  Ideally, the REIT becomes the buyer when Coda is ready to sell.

For more go to: https://www.codamg.com/

Feb 7, 2019

What are wealthy CRE Professionals doing that most of do not?

Doug Marshall is the principal at Marshall Commercial Funding.  Additionally, he is a CCIM, author and a returning guest to CREPN Radio.  In this episode, he shares five points he learned from his commercial real estate clients that have changed his financial fortunes significantly for the better.  And more importantly, how you too can leverage your relations with your commercial real estate clients.

For the first 24 years as a commercial real estate professional, I was on the never-ending hamster wheel of low paying jobs.  I was living paycheck to paycheck. I was just barely getting by financially.

My financial situation went from bad to worse when I decided to make the transition from banker to mortgage broker at the age of forty-six.  I was hired by a mortgage brokerage firm as an independent contractor which meant I received no salary and no health insurance. I didn’t even receive a draw.  I was totally without a safety net and that first year I made a whopping $7,000. I quickly went through the little savings I had and started borrowing against the equity in my house.  To say that time in my life was emotionally painful is a huge understatement.

The next four years I saw steady gains in my commission income but not enough to live comfortably, let alone put money aside for retirement.  During my fifth year as a mortgage broker, I came across the Albert Einstein definition of insanity. “Insanity is doing the same thing over again, expecting different results.”  I kept asking myself over and over again, “I’ve been working at this company now for five years and I’ve barely scraped by financially. What makes me think my sixth year will be any better than my first five years?”  And the honest answer was, I couldn’t expect my 6th year to be any better than the previous five years.   

Something had to change

I realized something had to change.  After much consideration I decided I needed to take the great leap into the unknown and start my own business.  So at the age of 51, I started Marshall Commercial Funding which turned out to be the best business decision I ever made.  For the first time in my career I was making good money. Boy that felt really good. But even so I knew there was no way that I was going to retire well.  

You see I could do the math and I understood I was too close to retirement to make up for the hard, lean years.  I realized it was very likely I may never be able to retire at all.

But I also realized that my clients were doing quite well financially.  Their liquidity and net worth were growing rapidly. That is no exaggeration.  I have a number of repeat clients and I saw how their financial strength increased dramatically from one year to the next.  It was an amazing thing to watch! And I knew at that point that the only way I was going to retire well was if I started investing in commercial real estate.  That was the only way of getting off the hamster wheel.

My financial situation improved dramatically

So, twelve years ago I started investing in commercial real estate.  And my financial situation has gone from very bleak to very good. Because of my real estate investments, my net worth and liquidity have grown dramatically.   

Not only could I retire if I chose to, but I could do so comfortably.  The passive income from my rental properties when added to my future Social Security checks significantly exceeds my personal expenses.  Today I am one of a small group of investors that owns several rental properties valued at over $50 million. So that’s my story.

Most Americans aren’t going to retire well

Why am I telling you this? I believe that many of you listening to me right now, are either living paycheck to paycheck or you realize that you aren’t going to retire well.  

Here are a few recent statistics:

  • 40% of adults can’t cover a $400 emergency expense with cash
  • 45% of adults have nothing saved for retirement
  • 63% of Americans at age 65 are dependent on Social Security, relatives, friends, or charity
  • 80% of Americans believe they will not have enough saved for retirement

I understand why most Americans would have a difficult time saving for retirement.  But those of us who are commercial real estate professionals we have a distinct advantage over most people.  Every one of us, reading this, in our own way, contributes to the success of our clients. But there is no reason why we can’t go along for the ride.  

And that is what some of us have done.  Do you want to know what wealthy CRE professionals do that most of us do not?  They invest in commercial real estate. Now throughout this reading, I’m going to ask you to raise your hands or sometimes to nod your heads.  I’m doing so because I need your feedback. As practice, by a show of hands, how many of you currently own a rental property?

Which brings me to my first point:

Point #1 – There is real wealth to be created in owning commercial real estate

Those who just raised their hands will tell you owning CRE creates wealth.  It’s not a myth. It’s not a get rich quick scheme. It actually works. My book, Mastering the Art of Commercial Real Estate Investing, shows you how to do it.  I’m going to give you a couple of tidbits from the book today to get you started on learning how to build wealth and grow passive income.

For those of you who didn’t raise your hand, this is my goal for you today: When you done reading, you’ll know what’s holding you back and you’ll know the steps you need to take in order to achieve financial freedom.  

Today I am going to share with you 5 critically important points that have the potential of being life changing. Actually, I’ve already shared the first point: There is real wealth to be created in owning commercial real estate.  

The second step to achieving financial freedom is this:

Point #2 – The savings generated from active income, i.e., your day job, will be invested in assets that generate passive income.

So we are all on the same page, let me define what I mean by financial freedom.  Financial freedom is achieved when your monthly sources of passive income consistently and substantially exceed your monthly personal expenses. When that day happens you no longer need to work for a living.  Congratulations! You’ve stepped off the hamster wheel.

Passive vs Active Income

But notice I said passive income.  What is passive income? Passive income is cash flow received that requires little to no effort by the recipient to maintain it.  Another name for passive income is mailbox money because it comes in the mail without lifting a finger. Here are some examples of mailbox money.

  • Annuities
  • Book royalties
  • Dividends from stocks
  • Owner distributions from rental properties
  • Pension
  • Social Security checks

The source of passive income I believe hands down has the best opportunity for creating wealth and growing passive income is commercial real estate investing.  

Active income, on the other hand, comes from performing a service. Your day job is a perfect example of active income.  In order to receive a paycheck, you must perform a service. So what you do for a living is a form of active, not passive income.  

Two obstacles to investing in passive sources of income

But there’s a problem.  We may agree intellectually that we should invest in assets that generate passive sources of income, but most of us will fail miserably to put our plan into action.  Why? Because other purchases like a new car, an exotic vacation or a nicer home will tempt us to spend our money elsewhere. If that doesn’t cause you to stumble the next obstacle does: You’ve been brainwashed and incentivized to put your savings into an IRA or 401(k) plan.  And what types of assets do you normally purchase for these types of accounts? Stocks and bonds that generate little or no passive income.

The benefit of investing in assets that generate passive income

Some of you are thinking, “Why is it important to generate passive income.  I’m very happy with the return I’m getting on my 401(k) or IRA?” Right? Fast forward to the day you retire.  If your assets are in stocks, bonds, precious metals, land, art, collectibles (anything that doesn’t generate passive income) how are you going to live off them?  You will live off them by slowly liquidating them over time. Right? What happens if you live longer than your assets do? You’re toast. You end up being like the vast majority of Americans who will eventually end up dependent on Social Security, friends, family or charity.  

Not so with commercial real estate.  You do not live off liquidating your rental properties.  You live off the passive income generated from your rental properties.  And this passive income slowly builds over time. So when your passive income from your rental properties coupled with your future Social Security checks consistently and significantly exceeds your monthly personal expenses, you have attained financial freedom.  In other words, you could live to be 120 and you’ll never run out of money.

So the second step to financial freedom is to invest your savings generated from your day job into rental properties that generate passive income.

The third step to financial freedom is this:

Point #3 - Everything we really want in life is on the other side of fear.  

Think about that statement for a moment.  Is it true? I believe it is. Remember that first kiss?  How about the first time you did anything well? A solo, a speech, an athletic endeavor?  Do you remember that fear you felt that gave way to relief? And then to joy? Those are examples of doing something that you really wanted to do well, and you overcame your fear and did it.  

I believe the number one reason we don’t invest in CRE is fear.  Fear of failure is all about looking foolish in the eyes of your family and friends if things go wrong.  I get it. I really do. But it doesn’t have to be this way. Those of us who are reluctant to invest in CRE need to adopt a different mindset of, “You either win or you learn.” In everything we do, we either win (we make the right decision) or we learn an important lesson so next time we have a better outcome. Sometimes your investment is a home run, and sometimes you learn what not to do so next time has a higher probability of being a success.

An example of overcoming the fear of failure

In 2009, a group of like-minded investors banded together to purchase a 56 unit apartment that had been taken over by the bank.  Do you remember what was going on in 2009? We were in the depths of the Great Recession. The real estate market was in a freefall.  Everybody and their brother was running away from real estate in 2009 and here we were thinking about buying an apartment. What were we thinking!!  Had we lost our minds?? Was I fearful? You bet I was! But I kept looking at the numbers and it made sense to me. Eventually I decided to proceed and looking back on it now, it was the best investment I’ve ever made.  For every dollar invested we received $6 dollars back in owner distributions or in increased equity. But before I could invest, I had to get over the fear of failure.

Winston Churchill quote

Some of you are being held back from investing because you too are fearful.  Winston Churchill said it best when he said, “Success is not final, failure is not fatal; it is the courage to continue that counts.”  To succeed in life, we must realize that everything we really want in life is on the other side of fear. Does that make sense?

So the fourth point we are going to discuss is this:

Point #4 - The best way for most of us to invest in CRE is as a passive not an active investor.  

How many of you are thinking some like this: “Fear is not holding me back from investing in commercial real estate.  My problem is I don’t have the time, the experience or the financial resources to be investing in rental properties. I’ve got a day job that keeps me plenty busy without adding this additional stress to my life.”  So who is thinking something like this?

But this is where you’re wrong.  Dead wrong. That thinking assumes that the only way to own rental properties is as an active investor.  An active investor is the person who makes all the important decisions, what to buy, how much to pay for it, how to finance it and manage it.  To name just a few. True, this is one way to own CRE. But many times, the active investor, also known as the managing member of an LLC, or the promoter, or the syndicator or the sponsor, can’t do it without passive investors, also called equity partners, who provide the capital needed for the down payment.  

Not everyone can or should be an active investor as it requires someone who has the time, experience and resources that many of us don’t have.  But if we want to retire well all of us should strive to be passive investors of commercial real estate.

In the past 12 years I’ve invested in 10 rental properties as a passive investor.  My only responsibility has been that I provide some of the equity to purchase the property.  I leave all the decision making to my real estate sponsor. I’m more than happy to have someone else make all the decisions while I get my monthly owner distributions.  It’s kind of like the best of both worlds, don’t you think?

So the best way for most of us to invest in CRE is as a passive, not an active investor.  Does that make sense?

The fifth and final point I want to make is this:

Point #5 - To succeed as a passive investor requires finding the right active investor to invest with.  

Be wary of real estate syndicators

Where do you find the “right” active investor?  You have two choices. You can go to one of many online crowdfunding sites and choose one.  But you must qualify as an accredited investor. But the real problem with using a syndicator from a crowdfunding site is that you have no idea the character of the person you’re trusting with your hard-earned money.  

One time I was considering an investment opportunity with a syndicator.  On the surface everything looked legit. But I was having problems determining how much money the real estate sponsor was going to invest in the property.  They kept sending me pages of details about their proposed offering, but nothing explicitly stated how much they were personally investing in the property. So I point blank asked.  The answer: none! Not a penny. So if the property went belly up, it would have no financial impact on them personally. Not only that, they were making handsome fees up front coupled with a very generous fee split with the equity partners when the property was sold.  It was a win, win, win for them! This was an excellent deal for the syndicator but they were treating their prospective investors like chumps. They were structuring the deal so they made out like bandits while incurring no personal investment risk if things went badly.    

I’m sure there are many fine real estate syndicators that you can do business with.  But I have no sure-fire way of determining who is honest and who is a wolf in sheep’s clothing.  Who is offering a fair fee split for their services and who is gouging their investors? It’s sometimes hard to tell.  The point I’m trying to make is this: I’m wary of syndicators that I do not know personally and you should be too.

The best and easiest way to choose an active investor

But here’s the best and easiest way of choosing an active investor to partner with.  And they are right under our noses. They are our clients. For me it was an easy choice to determine who I would trust with my investment money.  I do all my investing with one real estate sponsor that I’ve known for about 25 years. He’s not only my client, he has become a friend and a 7 year member of my book club.  I know his excellent commercial real estate investing track record. I know that he is a man of integrity and because of that I trust him. So in 2007 I asked if I could invest with him and he gladly said yes.  He said yes because I had financed several of his properties over the years and he had come to know that I was good at my craft and someone he trusted and liked. And now when he invests in a new property I am one of the first people he asks to invest with him.  Better yet, I’m given first shot at doing his financing.

As a passive investor you let someone else make all the investing decisions except for one: Who do I want to trust with my money?  This decision is very important, maybe the most critical of all the decisions you have to make about investing in commercial real estate.  

Ask your clients these questions

So how do you go about finding the right client to invest with?  It’s really a no-brainer if you’ve been a CRE professional for a number of years.  Ask yourself these questions. Of all my clients:

  • Who consistently brings me their business?  
  • Do they think of me as a valuable team member?
  • Do they trust and like me?
  • Of these clients, which ones invest with equity partners?
  • Final question: Do I trust and like them?

Raise your hand if you have someone in mind?  So the next time they contact you to use your services, ask them if you could invest with them.  You won’t know if you don’t ask and if you ask I bet they’ll say yes. Why wouldn’t they say yes?  They use your services because they consider you the best in the business or they would go somewhere else.  Right? And investors who team up with equity partners are always looking for new sources of investment capital.  The worst case scenario is they say no. If that happens, don’t take it personally. They have their reasons which probably has nothing to do with you.  Instead, go back and review your list of clients and go through the process again. Rinse and repeat until one of your clients enthusiastically says yes.  

So the fifth and final point I want to make today is: To succeed as a passive investor requires finding the right active investor to invest with.  Does that make sense?

Summary of 5 points

We talked about:

  1. There is real wealth in owning CRE.  It’s not a myth.  It’s not a get rich quick scheme.  It actually works.
  2. The importance of invest your savings in assets that generate passive income.
  3. Don’t let fear stop you.  Understand that everything we really want in life is on the other side of fear.
  4. Most of us should invest in CRE as a passive, not as an active investor.
  5. To find the “right” active investor, invest with a trusted client who values your service and would be eager to have you as an equity partner.

Final thought

I want to leave you with this final thought: If I can do it, so can you.  I wasn’t able to start investing in CRE until I was 55 years old! That’s a very late start and yet I am now able to retire well. So if I can do it, so can you.  

Imagine for a moment that you start investing a modest amount this year with one of your favorite clients.  As the years progress that small equity investment will grow, slowly at first but before you know it, it will be a tidy sum.  Now imagine if you invested a small amount every year between now and retirement so that when you retire you have 20 or more these investments.  Where do you think you’ll be financially when it’s time to retire? Yep. You’ll be able to retire in style.

Call to action

This brings us to my original point: I began my talk by expressing my hope that when you walk out of here today that you would know what’s holding you back from achieving financial freedom.  If what I’ve said today describes your financial situation, either you’re living paycheck to paycheck or you know that you’re not going to retire well, then I want you to do these 3 things:

  1. Take a moment right now and identify what’s holding you back;
  2. Right now, determine what one thing you need to do to move the ball forward; and
  3. Consider buying my book.  On your table is a book card which identifies the book’s name and author so you can go to Amazon to purchase the book.  And if you’re skeptical that this book or any book for that matter can help your financial situation, then I encourage you to download for FREE the introduction and the first 2 chapters of the book.  You can do that by going to the URL found on the back side of the book card.  If after reading it, it resonates with you that this book might be helpful, then buy the book.  It’s as simple as that.

This is my 3-step plan for you to become financially free.

Thank you so much for your time and attention.  

Source: Fed survey shows 40 percent of adults still can’t cover a $400 emergency expense, Sarah O’Brien, https://www.cnbc.com/2018/05/22/fed-survey-40-percent-of-adults-cant-cover-400-emergency-expense.html, May 22, 2018; 20 Retirement Stats That Will Blow You Away, Matthew Frankel, CFP (TMFMathGuy), https://www.fool.com/retirement/general/2016/01/26/20-retirement-stats-that-will-blow-you-away.aspx, January 26, 2016.

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

1 « Previous 4 5 6 7 8 9 10 Next » 10