How to sell my apartments fast – Seven Tips

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How to sell my apartments fast – Seven Tips

Reasons, why you might want to know how to sell my apartments fast, include things such as you are tired of being a Landlord and doing things such as collections, repairs, finding tenants, etc., you inherited the property and don’t want to be a Landlord, the foreclosure process has begun on the property, you are going through a divorce, as well as all kinds of other situations.

Selling an apartment building quickly can be done but it will take a little work on your part. In order to sell your apartment building, you’ll have to create the marketing material, find potential buyers, and sell them on the positives of your property directly.

Here are seven tips on “How to sell my apartments fast”:

1. Google the term ‘buy my apartments fast’ and you will get a list of websites of potential purhasers for your property. You might want to put your state or area into your search query such as ‘buy my apartments fast texas’ if your apartments are located in Texas.

2. Check your local Craigslist for people looking to buy apartments or put together an ad on Craigslist similar to ones that you will see on the site. A problem you may encounter by putting it on Craigslist is that your current tenants may see it, they may assume a new landlord might raise rents, and you could face multiple vacancies before your building actually sells. This is also why you may not want to put a “For Sale” sign on your building’s property.

3. Find the owners of local apartment buildings (similar to your apartment as possible). Search the local county appraiser website to find owner name and address. You can write a letter to solicit an offer, or call if you can get their info online. Another option is to contact the local city/county municipality to pull up rental licenses. Rental license is frequently required before a unit may be rented out.

4. Post your property on appropriate real estate websites once you have exhausted your buyer database. List your building’s details on sites such as LoopNet, CityFeet and the CoStar Group.

5. Take calls from brokers. When you list your property on the Internet, expect to receive multiple calls. While you may not want to list your property in such a public manner, the odds are that outside brokers will bring in additional buyers. Work with brokers, and pay them a commission if a sale results from one of their buyers. If you don’t pay a commission, a broker will have the buyer pay him, which could lead to a reduction in the final sale price.

6. Contact local apartment management companies. They usually have the names and contact information for many local investors. However, like a broker they will expect a commission if their investor buys the property.

7. Attend a local real estate investment club meeting. There are usually several investors at the club meetings.

The biggest issue with trying to sell it yourself or selling it with a real estate agent is often times retail buyers will tie up your apartments for weeks and pull out on the deal at the last second… or have their bank loan fall through.

This unnecessarily adds stress and countless months to the process. Once you pay realtor fees, you may not have what you were looking for.

We at Texneb Properties work differently. We will provide you a fair all-cash offer on your apartments within 24 hours of submitting the short information we request and you can then close when you want to close.

If the apartments are in terrible shape and you don’t want to (or can’t) fix them up… NO problem, we’ll deal with it for you.

If you need to get something done quickly, we can close fast because we buy apartments with cash and don’t have to rely on traditional bank financing.

If we can help, please call me at (210) 401-2087 or email me at texneb@gmail.com

We look forward to hearing from you.

If you need additional information about Texneb Properties, please click this link.

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Why Invest In Apartments?

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“It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate.”

Let me ask you a very simple, yet profound question: Why would you invest in apartments? Understanding the answer or answers to this question will help you along your investment career.

The following are a few common answers I have picked up on when I see this question asked:

Top 5 Financial Reasons to Invest in APARTMENTS

Let’s first look at the top 5 reasons to invest in apartments from strictly an investment standpoint:

1. Cash Flow – whether you buy with all cash or use today’s favorable financing with a low mortgage payment, positive monthly cash flow will occur when the monthly rent is greater than the monthly expenses. This gives you a monthly income from your apartment investment.

2. Appreciation – Appreciation is the increase in the property’s value, which generally occurs over time and can also be increased by an investor who adds value to the property through repairs and/or enhancements. This is also a great way to create equity in the property.

3. Depreciation – Even with an increase in the property’s value, the government allows owners a tax deduction on their property after they’ve owned the property for at least a year. This annual deduction is called depreciation which when added to the equation, protects the cash flow so that you receive some or all of it tax free. If you are an investor with an income from other sources such as a regular job, it can protect all or some of that income from state and/or federal income taxes. If you really want to understand how great this is, talk to an accountant.

4. Tax Benefits – In addition to depreciation, an investor can usually claim the interest portion of his monthly mortgage payment as a tax deduction.

5. Leverage – Leverage is a very powerful reason for investing in apartments. If an investor used 100% cash to acquire apartments worth $100,000, and the apartments increased in value by $5,000 in one year, then the investor made a return of 5% (assuming no other costs in this case). However, if the investor obtained 80% financing, only $20,000 cash would be required at the closing table, and a bank or other lender would loan the remaining $80,000 to acquire the property. Assuming the same $5,000 increase in value, the investor’s cash contribution of $20,000 would yield a 25% return on investment ($5,000 increase in value divided by the $20,000 investment) in the same one year period of time.

With the above example, if the investor is able to bring in even a conservative amount of cash flow per month of $200, this will result in an additional $2,400 per year added to the increased appreciation. Your return for the year would now be $7,400 ($5,000 appreciation plus $2,400 cash flow) and your return on investment would now be 37% ($7,400 divided by $20,000). Even if the property value stayed stable with no appreciation, you would still see a positive return on your investment of the $2,400 in cash flow with a return on investment of 12%.

Adding to these benefits the low interest rates for financing and you can see how easy it is to accumulate wealth and become a successful investor.

Major Personal Reasons People Invest in APARTMENTS

Freedom:
Frankly, this is why most people start investing in real estate. They get star struck with the idea of riches that would give them the freedom to stop working for someone else. They may have a great job that they absolutely love that pays the bills but they still want to achieve long-term freedom. Or they may want extra money to eventually travel and do the things they want to do. And, if you buy and hold cash flow properties over time, sacrificing and delaying gratification, in five, ten or twenty years, you should have a pile of monthly cash flow and be able to attain that desired freedom.

Control:
Some investors I speak with want to own apartments to give them some level of control over their financial lives because, let’s face it, we have zero control in financial investments outside of real estate investing. If you invest in the stock market or money market funds, you don’t have any control over the return you may make on them. With real estate, there are things that you can do to control your return on investment as shown above.

Alternatives:
For some investors, real estate is nothing more than a portion of their overall investment portfolio. Perhaps you have divided your portfolio to include mutual funds, stocks, and real estate investment, etc. Or maybe you’re looking to achieve higher returns out of your cash through active management.

Career, Job, or Escape:
A few investors look at real estate investing as a career or a chance to own their own company. Others look at real estate as a means to eventually replace the job or career they may currently hate. And I’ve also seen many dive in head first, as if they’re running away from something versus running towards something.

Creating Value or Thrill of Hunt:
Many investors love the thrill of the deal and love telling you about the thrill of chasing a deal down or their last remodel. They pursue that addictive feeling and are always looking for the next rush or opportunity to turn another ugly duckling into a beautiful swan.

Options:
After many years of apartment investing, I have come to realize that in the end people love investing in apartments because it has given them so many more options. They have the options of continuing to work their current job, buying real estate as a full time career, and/or traveling, etc. The more they invest the more option doors open.

The Real Reason to Invest in APARTMENTS

People fall hard for the sexy pitch of earning freedom. Frankly, freedom is good but I think what people are really after is options. I believe that is why they keep working so hard to find the next deal, to find the next investor, and to keep building their growing portfolio.

Some might think freedom and options are the same things. But to me, freedom really means that they can stop doing something while options mean they can do other things. Having lived through this realization, I can tell you firsthand that having options is even better than having freedom. I would say you get freedom first, and then you build or acquire options.

As you read this, I hope you will be honest and figure out what Apartment Investing means to you. I suspect that no matter why you think you are investing, if you peel back the onion, you are really looking to create options for you and your family.

Good luck in your investing, no matter your reasons!

As I say throughout my blogs, if I may be of assistance with your real estate questions, please contact me…I truly want to help. My way of giving back is to give away my knowledge. Thank you for visiting my blog.

If you want to know how to sell my apartments fast click this link.

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How to Prospect for Apartments

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The answer to how to prospect for apartments in order to find a real estate investing opportunity can be as easy as turning on your computer or driving around town or picking up your cell phone. The best sources for locating properties are:

Commercial Brokers

Local brokers can be found by driving around or through apartment areas and taking down the information on the “For Sale”, “For Lease” or “Space Available” signs. You can then call the broker directly or visit the website if it was listed on the sign. Another way is to enter “Apartment Brokers” in your search engine and check out the websites you come up with to find someone in your local area.

Although in most areas of the country there is not an MLS (Multiple Listing Service) for apartments like there is for residential properties, apartment brokers have their own listings of properties for sale, as well as a database of properties that other brokers have for sale. They will have properties locally as well as nationally. Utilizing a broker usually does not cost you anything as a buyer because the brokers will typically be compensated by the seller. In cases where the buyer does pay all or part of the commission, it is worth the cost if the broker has found you a great deal and probably saved you more than the cost of the commission.

Internet Sites

A number of good websites can lead you to potential apartment deals. The most well known is Loopnet, which is similar to a multiple listing service for apartments. To find other sites such as CIMLS is to google “Apartments For Sale”. Please note that most of the sites will ask you for a city or state. You can usually narrow your search once you are onto the site.

You can also go directly to the websites of national apartment brokerage firms where you can see their listings and get valuable market reports. The beauty is that if the property you’re looking for is no longer available, you can sign up for property availability alerts or contact one of the brokers directly. By talking with a broker, you may find that the property you were checking on is no longer available, but that they are getting ready to list another property that may meet your criteria.

Real Estate Investment Clubs

Most of the larger cities in the U.S. have a number of local real estate investment clubs. These groups provide great opportunities to network and meet with other investors who have a similar interest in apartments. The members typically include just about everyone: beginning, as well as seasoned investors, brokers, attorneys, title company officers, appraisers and others who make their living from the various real estate investing professions. Most of these associations meet once a month to discuss current events, share information and have an expert speak to the group.

To find clubs in your city, enter “real estate investment club” in your search engine or try going onto the National Real Estate Investor Association website and then search for the nearest club in your area.

Newspaper Ads and Publications

You can often find owners of apartments who want to sell by looking at newspaper classified ads, craigslist and real estate publications ads. Magazines that are good are Real Estate Forum and publications by France Publications. Newspapers can include your local paper, The Wall Street Journal, The New York Times and the Los Angeles Times.

Other Sources

Others who may be able to assist you in your search include your own personal network of contacts, a local realtor or the realtor you bought your house from, your banker, your attorney or your accountant, any of whom can possibly assist you in your search.

Whatever you do, have fun learning how to prospect for apartments. Talking with others increases your knowledge and expands your network.

As I say throughout my blogs, if I may be of assistance with your apartment questions please contact me, I truly want to help. My way of giving back is to give away my knowledge. Thank you for reviewing this blog.

If you want some tips on how to sell my apartments fast click on this link.

wikipedia

How to Buy Apartments

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If you want to buy apartments and build significant wealth, it’s going to require that you take the time to think things through. It requires planning, patience and persistence – or, in other words, it requires you to develop a strategy or business plan. Think of this as your road map.

Mission Statement

Your first step in buying apartments should include a mission statement. This is where you clearly define your purpose and should include some benefits that will be derived. Don’t spend a lot of time here at first, just put together some general concepts.

Goals

Secondly, you should set some goals. This step is the why am I doing this. Do you want to quit your current job or do you want to retire early or set up a way to pay for your kids college education or do you just want some extra spending money for that new car, dream vacation, etc. Set these out and refer to them often. I like to set short and long term goals. Short goals so that I can achieve them and have some immediate gratification and long term goals so that I always have something to look forward to. Your goals should also include how many properties you are going to buy or that you want to make $5,000 per month if that is your goal. The key thing in goals is to write them down and adjust or update them as you achieve them.

Time Frames

The next thing to do is to set out time frames within which you want to achieve your goals. Be realistic in this aspect, but also stretch yourself. State when you are going to buy those properties or when you are going to be making the money that you want or when you will take that vacation.

Strategy

The next item to tackle would be to think about your strategy. There are many, many ways to make money in apartments. If you want to buy a property a year, write that down. If you want to flip a property every 3 months, write that down. Your strategy is how you will be using real estate to accomplish your goals. Note that this can be an evolution over time, but you need to start somewhere. The key thing is to write down a strategy, then adjust if you need to as you go along. In the beginning you may think that you want to buy and hold apartment buildings, but you may find out that your preference is to buy apartments, fix them up, then flip them. The key thing is to work within a specific niche such as apartments or nnn properties or office buildings or shopping centers, etc. It’s best to start out in a particular niche, because you will have a learning curve to go through. It’s easier to learn about one particular type of real estate than to try to tackle all of them in the beginning.

Market Area

Your next step is to define your market area. Most beginning investors start in their own backyard, because you already have some knowledge about that area and you can easily drive it to find properties or locate brokers to call, etc. Once you have completed a couple of deals you will find that you can expand your area and look into other cities around you and then other areas of the state and so on.

Establish Criteria

To me this is the most important thing that you can do for your investing business. Sometimes the best deals are the ones that you walk away from. In this step you are establishing the return on your time and money. Setting your financial parameters as well as establishing the type of property you want to buy are the keys to setting up your success in this business. The financial items that you will want to consider are maximum purchase price, cash flow requirement, return on investment, loan to value ratio, maximum cash outlay, max rehab costs and time frames. Deviating from your criteria can be disastrous for you. By having clearly defined criteria you will be able to recognize your deal faster and let others know exactly what you are looking to buy. If you are not finding deals you can look at other markets or adjust your strategy. Always ask yourself “What is this property worth to me?”, not “What is this property worth?”. Also, remember that you want to make your money when you buy the property. If you’ve bought outside of your criteria you didn’t make money when you bought the property, you have already put yourself behind.

Financing

Here is the point where you need to consider how you are going to finance your deal. You are not looking for specifics here, you are looking for concepts such as will you be using conventional financing, private money financing, seller carryback financing, hard money financing, using a lease option, using partners or some other type of creative financing. In my opinion, if you want to purchase several properties you will need to seek out private money financing so that you will have a never ending supply of cash available, however you typically need to establish yourself with a couple of deals first.

Marketing Yourself

This is where you need to state how you plan on attracting deals. How are you going to find the best sellers which are motivated sellers? Will you be using brokers or newspapers ads or direct mail or doing online searching through companies like LoopNet or just driving around or all of the above. Once you have established how you are going to find the deals, then you will want to clearly define your purchasing process. This should include submittal of the offer, acceptance of the proposal, putting up the earnest money deposit, submitting loan documents, commencing due diligence, review title, agreement to all terms and conditions and closing the deal. During this thought process you will want to define your team. Will you need an attorney, a construction or maintenance person, an accountant, an insurance agent, etc. You don’t need to know or state any particular people, but you do need to know your own strengths and weaknesses and how people on your team can help make your deals go smoothly.

Exit Strategy/Strategies

Another very important step is to define your exit strategy. Beginning investors should have more than one exit strategy. If you want to buy and hold, define the number of years that you want to hold and the return that you are seeking. While your preferred choice is to buy and hold, you may want to consider flipping the deal or wholesaling the deal if you get into trouble with it. There are many ways to exit a deal other than just selling it. Some of them include 1031 exchanges, sell it on a note, sell the entity holding title or doing a lease option. Having back up plans is a must in the real estate game.

Personal Financials

Prepare a current personal financial statement and then project it into the future for five or ten years based upon the goals and strategies that you have plotted out above. You are going to want to update this as often as needed, but at least once per year. This is the fun part, projecting your wealth as you grow your portfolio.

Always remember that this business plan is a guide, not a hard and fast rule. You have set this up to guide and motivate you. If you fail to plan, you plan to fail.

As I have said before, if I may be of assistance with your real estate questions please contact me. I truly want to help. My way of giving back is to give away my knowledge. Thank you for reviewing this blog.

If you would like some tips on how to sell my apartments fast click this link.

wikipedia

How to Prospect for Commercial Real Estate

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The answer to how to prospect for commercial real estate in order to find a real estate investing opportunity can be as easy as turning on your computer or driving around town or picking up your cell phone. The best sources for locating properties are:

Commercial Brokers

Local brokers can be found by driving around or through commercial areas and taking down the information on the “For Sale”, “For Lease” or “Space Available” signs. You can then call the broker directly or visit the website if it was listed on the sign. Another way is to enter “Commercial Real Estate Brokers” in your search engine and check out the websites you come up with to find someone in your local area.

Although in most areas of the country there is not an MLS (Multiple Listing Service) for commercial properties like there is for residential properties, commercial brokers have their own listings of properties for sale, as well as a database of properties that other brokers have for sale. They will have properties locally as well as nationally. Utilizing a broker usually does not cost you anything as a buyer because the brokers will typically be compensated by the seller. In cases where the buyer does pay all or part of the commission, it is worth the cost if the broker has found you a great deal and probably saved you more than the cost of the commission.

Internet Sites

A number of good websites can lead you to potential commercial property deals. The most well known are Loopnet and Costar, which are similar to a multiple listing service for commercial properties. To find other sites such as CIMLS is to google “Commercial Real Estate For Sale”. Please note that most of the sites will ask you for a city or state. You can usually narrow your search once you are onto the site.

You can also go directly to the websites of national commercial brokerage firms where you can see their listings and get valuable market reports. The beauty is that if the property you’re looking for is no longer available, you can sign up for property availability alerts or contact one of the brokers directly. By talking with a broker, you may find that the property you were checking on is no longer available, but that they are getting ready to list another property that may meet your criteria.

Real Estate Investment Clubs

Most of the larger cities in the U.S. have a number of local real estate investment clubs. These groups provide great opportunities to network and meet with other investors who have a similar interest in commercial property. The members typically include just about everyone: beginning as well as seasoned investors, brokers, attorneys, title company officers, appraisers and others who make their living from the various real estate investing professions. Most of these associations meet once a month to discuss current events, share information and have an expert speak to the group.

Newspaper Ads and Publications

You can often find owners of commercial properties who want to sell by looking at newspaper classified ads and real estate publications ads. Magazines that are good are Real Estate Forum and publications by France Publications. Newspapers can include your local paper, The Wall Street Journal, The New York Times and the Los Angeles Times.

Other Sources

Whatever you do, have fun learning how to prospect for commercial property. Talking with others increases your knowledge and expands your network.

As I say throughout my blogs, if I may be of assistance with your real estate questions please contact me, I truly want to help. My way of giving back is to give away my knowledge. Thank you for reviewing this blog.

Exit Strategies in Commercial Real Estate|Buying with the End in Mind

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One of the most important things that you can do when you purchase a property is to think about your exit strategy. You should have more than one exit strategy when you purchase an asset and you should think about the worst case scenario which will involve “how do I exit this under-performing investment?”.

Originally most people think that they will own the property forever and you may very well do that. However, I suggest that you review each of your properties on an annual basis to make sure that they are meeting your current investment and personal goals. Priorities in life will change over time and your investments should adjust with those priorities.

I believe that one of the best investment strategies that you can have is “buy low and sell high”. This would mean that when you are at the height of the market you would sell your property or properties, hold the cash in a low risk investment, keeping your money liquid and then get back in when the real estate market is down. You will probably be into your new properties for less than you were into your previous properties. Remember that you make your most money when you have bought the property at its lowest point.

Following are some exit strategies for you to think about when you purchase that special investment.

STANDARD SALE BY HIRING A REAL ESTATE PROFESSIONAL

The first exit strategy is the one that most people go through which is to hire a real estate broker and sell the property. You will want to calculate your breakeven point taking into consideration not only the amount of money you have invested in the property, but also the liens, commissions and closing costs. Plan and discuss the sales strategy thoroughly with your broker, and have him run the comparable sales in the market so that you can price your property accordingly.

Remember the 80/20 rule when it comes to brokers. The rule is that 20% of the brokers do 80% of the sales. Look for that broker in the 20% arena.

To help your broker get the most offers and to maximize the sales price, it‘s a good idea to spruce up the property and/or stage it. Aim to look better than your competition.

FSBO – FOR SALE BY OWNER – SELL IT YOURSELF

Your next exit strategy might be to sell the property yourself. You can save some commission money; however, in commercial real estate I always suggest that you add the commission money into the sales price and let a broker handle things. Doing it yourself will take some time and work from you as you will need to come up with a marketing strategy. If you do belong to an investment club or are well connected in the commercial real estate community, then you may do well to put a marketing strategy together and do it yourself.

The marketing strategy should include these four essential components: defining the investor or buyer, understanding your competition, clearly presenting the benefits that you are offering and structuring your pricing and terms.

PROVIDING SELLER FINANCING

The third exit strategy that you might want to consider is Seller Financing. The benefits of seller financing include:

receiving monthly payments without having to worry about all of the ownership issues such as procuring tenants, maintenance issues, etc.
deferring taxes as you will only have to pay taxes on your yearly gain (check the current tax laws with your accountant on this)
makes the property easier to sell as the new buyer won’t have to go out and get a new loan
draws more potential buyers as some buyers won’t qualify for a traditional loan due to income documentation, self-employment or minor credit blemishes
provides a greater likelihood of getting full market value for your property
gives you a liquid asset as you can sell the note at a later date also giving you an opportunity to strategize or plan for the gain
allows you to receive a higher interest rate on your money than if you put it into other things such as bonds, savings accounts, etc
provides the peace of mind that your security is the real estate that you have owned and thus know quite a bit about
saves you money on the closing costs

The major negative of seller financing is that you may have to go through the foreclosure process if the buyer defaults, and the house may need repairs once you have foreclosed. If you are going to do seller financing I suggest that you get at least 10% down, run a credit check on the buyer so that you understand your risks and have the loan secured by the property.

UTILIZING A LEASE OPTION

Another exit strategy is to utilize a Lease Option. In this scenario, you put the tenant in a lease with the option to purchase the property at a set price at a future date. At a minimum, the monthly rent should cover your monthly costs and you should require a non-refundable deposit that is applicable to the purchase price for the option right. The pluses to this strategy are:

it’s a great strategy in a slow market where you would have to take a loss if you sold the property today
this type of tenant will typically take better care of the property
you may not have to pay a real estate commission if the tenant buys the building

The negatives are (1) if the market goes up and you have to sell it at less than market as you cannot sell it to anyone else during the option period; (2) your current mortgage may have a “due on sale clause” and this event may trigger that clause.

DO A 1031 EXCHANGE

If you have done a great job with your investment and you are looking at substantial capital gains if you sell the asset, you might want to consider a 1031 exchange. This is the Unites States government’s way of allowing you to exchange all or a portion of your capital gains through the purchase/exchange into another property. There are many guidelines and rules to follow in this process, but they can be well worth looking into as you can “move up” in your investments through time without paying taxes until you fully divest yourself of the investments. You may also be able to pass them along to your heirs “tax free”.

DECLINING GROWTH

If your strategy is to get into properties, fix them up or re-tenant them and resell it, your financial model will tell you when to sell. A property’s internal rate of return is a metric that tracks the total return of the investment over its holding period. As you stabilize the property, its income goes up and the rate of return goes up with it. Once you’ve gotten the property optimized, it earns a good return, but the rate stops going up. At that point, you’re no longer creating value, and it’s probably time to sell.

BALLOON PAYMENTS

Most owners hope to pay down their loan every year while growing their income and the property’s value. The longer you own it, though, the less of an effect these changes have on your overall position. For example, if you have a 20 percent equity position and it goes to 22 percent, it’s a 10 percent increase while going from 50 to 52 percent is a 4 percent increase. Many commercial real estate mortgages call for balloon payments between seven and 10 years into the loan. Given that the loans are inconvenient and expensive to refinance, the balloon payment due date is an excellent time to take your money out, reinvest it by trading up into another property and start again.

CONCLUSION

As you can see, there are many exit strategies. The key is to have a few in mind when you purchase the property and to review your goals each year to make sure that your portfolio is performing as your current goals require. I’ll leave you with the thought “Always buy with the end in mind” and you will always sell with a clear profit.

As I say throughout my blogs… if I may be of assistance with your real estate questions, please contact me. I truly want to help. My way of giving back is to give away my knowledge. Thank you for reviewing this blog.

Why Invest In Commercial Real Estate?

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“It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate.”

Let me ask you a very simple, yet profound question: Why would you invest in real estate? Understanding the answer or answers to this question will help you along your investment career.

The following are a few common answers I have picked up on when I see this question asked:

Top 5 Financial Reasons to Invest in Commercial Real Estate

Let’s first look at the top 5 reasons to invest in real estate from strictly an investment standpoint:

4. Tax Benefits – In addition to depreciation, an investor can usually claim the interest portion of his monthly mortgage payment as a tax deduction.

5. Leverage – Leverage is a very powerful reason for investing in real estate. If an investor used 100% cash to acquire a house worth $100,000, and the house increased in value by $5,000 in one year, then the investor made a return of 5% (assuming no other costs in this case). However, if the investor obtained 80% financing, only $20,000 cash would be required at the closing table, and a bank or other lender would loan the remaining $80,000 to acquire the property. Assuming the same $5,000 increase in value, the investor’s cash contribution of $20,000 would yield a 25% return on investment ($5,000 increase in value divided by the $20,000 investment) in the same one year period of time.

Adding to these benefits the low interest rates for financing and you can see how easy it is to accumulate wealth and become a successful investor.

Major Personal Reasons People Invest in Commercial Real Estate

Control:
Some investors I speak with want real estate to give them some level of control over their financial lives because, let’s face it, we have zero control in financial investments outside of real estate investing. If you invest in the stock market or money market funds, you don’t have any control over the return you may make on them. With real estate, there are things that you can do to control your return on investment as shown above.

Options:
After many years of real estate investing, I have come to realize that in the end people love investing in real estate because it has given them so many more options. They have the options of continuing to work their current job, buying real estate as a full time career, and/or traveling, etc. The more they invest the more option doors open.

The Real Reason to Invest in Commercial Real Estate

As you read this, I hope you will be honest and figure out what Real Estate Investing means to you. I suspect that no matter why you think you are investing, if you peel back the onion, you are really looking to create options for you and your family.

Good luck in your investing, no matter your reasons!

No Money Down Commercial Real Estate Deals

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I am frequently asked if you can buy commercial real estate with no money down. My answer is yes, you can buy commercial real estate with no money down, however you need to be careful and conservative in your approach. The other big thing that you need is your creativity. There are several no money down concepts including seller financing, using other people’s money, taking on a partner, utilizing home equity loans or lines of credit, wrap around financing, lease with option to buy, using private or hard money, assume some of the sellers debt, wholesaling properties and financing to 100 to 110 percent of the cost of the property through private lenders or USDA or VA loans. In the commercial real estate market, the two most common are seller financing and using other people’s money.

Seller financing is where the seller carries back a portion of or the entire purchase price. This is common in a market or economy where the banking industry has strict lending requirements making it very hard to get a loan. When you approach a seller about carrying back financing you will want to point out to them the advantages of seller financing which are: they don’t have to take all of the gain immediately, they can delay some of the gain as you make your payments, saving them some taxes on the gain, the note you negotiate can be sold at any time if they want to get out of it for any reason, you can pay them a higher interest rate than if they put the money in the bank or invested it in bonds, they will have the real estate as security for their note and they can potentially save money on closing costs.

Using other people’s money is where you find an investor or investors who will front you all of the required money. The investors can be a family member, a friend or a business acquaintance. The investor is usually looking for a certain percentage return or ownership or both. As you can see, the investor can be a lender and/or a partner, based on their wants and needs. Using this method, in the beginning you will be pledging a lot of your profit, however as you get experience and a solid track record, you will find that you will keep more of the profits for yourself. This method also requires that you put together a buying strategy and an exit strategy as your investors will want to know how long you will need their money and the return that they can expect.

One of the keys to no money down deals is that you need to bring something to the table. Some of the things that you can bring are your time, your experience, your creativity, your intelligence, your connections, your education and/or your confidence. As you do deals, all of these areas will grow, along with your bank account.

In my opinion, the best properties to do a no money deal with are those that have upside potential such as properties with 30% or more vacancy, properties with rents 40% or more below market, properties that you can expand because there is excess land or you can expand upward by adding levels and/or properties that have poor management where you can substantially cut expenses. These types of properties typically assure you that you can create immediate equity and/or cash flow through fixing a problem. In other words, this is where you utilize your creativity to solve a problem that a particular asset has. You need to learn how to see problems as opportunities.

I do not suggest that you buy a property for no money down that has a small initial return or breaks even or loses money on a monthly basis even if the property gives you tax advantages and cash flows after the tax advantages. If for some reason something goes wrong with the property and you have to put money into the property you will not appreciate this investment.

One of my favorite quotes when talking about no money down deals is “If you don’t think that you can do a no money down deal, then you can’t”.

As I say throughout my blogs, if I may be of assistance with your real estate questions please contact me. My way of giving back is to give away my knowledge. Thank you for reviewing this blog.

Commercial Real Estate Lenders|Loan Criteria

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The first thing that the commercial real estate lender does is determine if the loan fits into the lender’s risk guidelines and to gauge the risk the loan will present in terms of potential default. The greater risk that a loan possesses, the higher the reward or interest rate the lender will charge, and the more stringent the lenders guidelines will be for the loan.

To do this, every aspect of the loan is examined by the lender’s underwriter – the quality of the building, the income stream, and the quality of the borrower.

However, the property’s merits matter more than the borrower’s qualifications. Some of the items the lender considers are:

Curb appeal
The commercial real estate lender rates the property according to its current physical condition.

What is the “curb appeal” of the building or how does it look? Example: In the event of a foreclosure, an ugly building would be harder for a lender to sell than an attractive one, increasing the risk to the bank.

Tenants
Who are the tenants and how long are the existing leases?

If the tenants leases are expiring 30 days after the loan closes, that represents more risk to the income stream of the building than leases that expire in three years. An example: a Home Depot as an anchor tenant with a long-term lease would score more points than a Dollar Store, which is typically on a shorter term lease.

What is the quality of the tenants, or their financial strength?
A project with Kmart as a tenant would have seemed very strong – until Kmart went into bankruptcy and closed locations. A space the size of Kmart is hard to rent out, which makes those buildings harder to sell at the price the lender needs to cover the defaulted loan.

A commercial real estate lender also reviews how long a tenant has been in business.

Remember, like any investor, a lender making a commercial real estate loan is making a risk/reward judgment.

The Borrower
Who is the borrower? While the key to commercial real estate loans is the net operating income the building produces, the quality of the borrower does come into play. An underwriter wants to know credit scores and whether the borrower has late payments, particularly on mortgages. Mortgage lates will be the death knell of a loan for a majority of lenders.

The lender will also look at a borrower’s liquid assets to determine their ability to come up with cash in emergencies, the borrower’s net worth, and the borrower’s experience.

But keep in mind that while the borrower’s financial strength comes into play, it’s priority number 3 after the property’s income and the quality of the property.

Quality of the Lease
A commercial real estate lender determines the quality of the lease by looking at number of years on the lease, renewal options, rental increases and whether the tenant reimburses for property taxes, insurance and maintenance.

Historical Performance of the Property
Lenders rate the quality of a property by how well it has been operating in the past. A lender usually favors a property that has at least 12 months of stable operation. They will also look at the occupancy history of the property as well as the market occupancy of similar properties in the area. The higher the occupancy, the lower the risk.

Debt Service Coverage Ratio (DSCR)
The major question a commercial real estate lender asks is: Does this building’s income service the loan amount with an appropriate level of debt service coverage?

To answer this question, the underwriter first determines the current Net Operating Income (NOI):

NOI = Gross rents – operating expenses

The operating expenses include property taxes, building insurance, building utilities, 5% of gross rents for vacancy, and 5% of gross rents for management of the building.

To determine the DSCR, the underwriter then uses the following formula:

DSCR = Net Operating Income (NOI) ÷ Annual Debt Service

The typical minimum level for debt service coverage is:
1.2x for multifamily properties
1.25x for other commercial property types

As a side note, consider the risk/reward thinking that goes into a lender’s decision based on DSCR. All things being equal, what represents a more attractive commercial real estate loan scenario, strictly according to DSCR: 1.25x coverage or the same building at a 1.35x coverage?

Sounds simplistic, but of course the higher coverage is better because it provides more of a cushion for the borrower who has to pay the debt service and creates a better situation for the lender in the event they have to foreclose and sell the building.

Loan amount vs LTV
Loan to value (or LTV) is not a term that a commercial underwriter really considers when making a determination on the dollar amount of the commercial real estate loan that will be offered for a purchase. The key determination is going to be how the income of that building will service the debt of a certain loan amount.

Loan to Value Ratio = Mortgage Amount ÷ Appraised Value of Property

Of course, other factors, such as an outside appraisal, come into play when an underwriter is calculating loan amount, but DSCR is going to be the key number. Without a coverage ratio at an acceptable level, the other factors become irrelevant.

Cap Rate (Capitalization Rate)
The Cap Rate is used by the underwriter, as well as the investor or borrower, to get some idea of the value of the building and whether it has a good chance to appraise at an appropriate value. The Cap Rate for the given area can be used in conjunction with the NOI of the building.

Cap Rate = Net Operating Income (NOI) ÷ Actual Purchase Price

If you are trying to determine a Cap Rate for the market, contact a local commercial real estate appraiser or contact a local commercial real estate broker that specializes in the type of product that you are purchasing.

Glossary of Commercial Real Estate Terms

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Administrative Fee: Typically, a fee paid as part of the CAM expense. Usually 10% – 15% of the CAM expenses, not including real estate taxes, assessments or insurance.

Attornment: In the event a mortgage holder forecloses on the landlord, the tenant will recognize the change of ownership and the new landlord.

Build-to-suit: Method of leasing property in which the landlord makes improvements to a space based on the tenant’s specifications. The cost of construction is generally factored into the lease terms. Most build-to-suit provisions apply to long term (10-year)leases.

CAM charges: Common Area Maintenance charges including parking lot maintenance, landscaping, common area lighting, etc. Based on actual expenses and apportioned among all the tenants. CAM charges are quoted as $/SF and based on rentable square footage. Typically paid monthly based on estimated costs for the year. At the end of the year, actual CAM charges are calculated and a credit or debit is passed on to the tenants.

Capitalization Rate: Net operating income (NOI) divided by the purchase price.

Cash on Cash Return: Cash Flow Before Taxes (CFBT)/initial investment. Best indication of the quality of the investment.

Credit-tenant property: A single-tenant commercial property occupied by a tenant who has a credit rating by Moody’s or Standard & Poor of BBB or better.

Debt Coverage Ratio: NOI/loan payment. This is what your banker will want to know before lending you money for the investment.

Discount Rate: Rate of which future cash flows are discounted (devalued) per year.

Double Net Lease (NN): In addition to a fixed monthly rent, tenant pays property taxes and insurance.

Escalation clause: Clause in a lease that allows the landlord to increase rent in the future. Rent increases dictated under an escalation clause may be charged in various ways, including:
• A fixed increase over a definite period
• A cost-of living increase tied to a government index, such as the Consumer Price Index (CPI)
• An increase directly related to increases in operating the property

Estoppel: Clause in the leases that states that if the landlord sells or mortgages the property, the tenant agrees to sign an Estoppel certificate that acknowledges the tenant’s current lease. The Estoppel usually includes the rental amount, remaining time on the lease including options to renew, outstanding rental payments due, lease amendments and any other important items in the lease. Typically, when an owner plans on selling the property, the buyer’s lender will require the tenants to sign an Estoppel Certificate.

Exclusive Use Clause: Provides protection in the shopping center for their right to sell a specific product(s); the landlord may not lease space to any tenant that sells those items.

Gross Lease: Tenant pays a fixed monthly rent.

HVAC: An acronym for “heating, ventilation and air conditioning” system.

IRR (Internal Rate of Return): Calculated by setting NPV = 0 and finding out what the discount rate would be. Use a calculator to do this calculation.

Lien: Legal claim filed against a property for payment of a debt or obligation. If a property owner fails to pay a creditor, for example, the creditor can place a lien on the property. A lien can halt the sale of a property.

Liability Insurance: Tenant will be required to carry an insurance policy in an amount of generally two to four million dollars and name the landlord as additional insured.

Load Factor: If the tenant has rights to hallways, elevators, restrooms outside their space, lobby, etc., the landlord will determine how many square feet of this area exist and prorate it to the other tenants. The tenant will pay rent on their prorata share of this number when the landlord calculates minimum rent.

Management Fee: Part of the CAM expense. Calculated as a percentage of the gross rents for the space (5% – 10%).

NPV (Net Present Value): Method for calculating the present value of future cash flows. Useful for comparing different investments and their returns. Most calculators provide NPV calculations.

Optimum Holding Period: Number of years to hold a property in order to maximize ROE. After this period it’s best to sell or exchange the property.

Percentage Rent: In addition to Minimum Rent, tenant will also pay a percentage of their sales volume as additional rent. Typically, when a tenant reaches a specific sales volume, the tenant will pay the landlord an amount over and above a specific figure. Example: if a Tenant’s minimum rent is $100,000/year and they have a 6% overage clause, the calculation is: $100,000/6% = gross of $1,666,666. The tenant would be required to pay the landlord 6% of the amount that exceeds $1,666,666.If the tenant did $2,000,000 in sales, $2,000,000 – $1,666,666 = $333,333 x 6% = $19,999 additional rent paid to the landlord.

Projected Gross Operating Income: Property’s annual income if all spaces were rented and all of the rent actually collected, minus an allowance for vacancy and credit loss.

Prorata (pro rate): The percentage of space occupied by a tenant as compared to the total space available for lease in the development. Example: if the total space in the center is 5,000 square feet and the tenant leases 1,000 square feet, prorata share is 1,000/5,000 = 25%. The tenant is then responsible for 25% of the total expenses of the development.

Recapture: The right of the landlord to cancel a lease with a tenant in the event a tenant desires to sublease or assign its lease. The recapture allows the landlord to lease the space directly to a new tenant and hot have the existing tenant assign or sublease to a new tenant.

Rentable square feet: Total square feet used to calculate the rent rate; may include an apportionment of lobby, hallways and other areas in the building available to and used by all the building tenants. Expressed as a multiplying or load factor of Useable SF. Example: Rentable SF = Useable SF x 1.15 (multiplying or load factor)

Return on Equity (ROE): CFBT/equity. Equal to Cash on Cash the first year, then decreases because your equity grows faster than NOI (due to depreciation and mortgage retirement).

Right of First Offer: Before offering a space or property for sale on the open market, the landlord or owner is obligated to offer the property first to a specific party.

Right of First Refusal: Allows a tenant the first opportunity to lease space if the landlord has a qualified party ready, willing and able to lease the space. The tenant can accept the other party’s offer amount which he will pay to the landlord or decline to lease the space.

Sale-leaseback: Transaction in which an owner sells a property to an investor who then leases the property back to the original owner under prearranged terms. Sale-leaseback deals offer the original owner freed-up capital and tax breaks and the investor a guaranteed return and appreciation.

Sublease: Lease given by a tenant for some or all of a rented property. For example, if a tenant rents 20,000 square feet but ends up needing only 10,000 square feet, they may want to sublet the extra space for some or all of the remaining term of the lease, providing they continue to occupy and pay rent for the property.

Subordination: Tenant agrees that the lease is subordinate to the mortgage. If the property is sold, the new owner cannot cancel the lease and the lease is in full force and effect. The lender’s position is not affected by the change in the tenant’s lease. In the event that the property is foreclosed, the lender may either keep the lease in effect or terminate it.

Triple Net Lease (NNN): In addition to a fixed monthly rent, tenant pays property taxes, insurance and common area maintenance.

Useable square feet: Total square feet within the walls of the space being leased. Actual space available for Tenant’s exclusive use.

Utility Costs: In larger spaces, utilities are separately metered and paid by the Tenant. In small spaces, utilities may not be separately metered and are apportioned among all users.

Vanilla Shell: Landlord provides the space with walls ready for paint, concrete slab floors, drop ceilings, lighting, air conditioning and heating, electrical panels, bathroom and electrical outlets per code in the walls. Does not include floor covering, wall covering, or any additional interior walls.

Yield Capitalization: More complex form of income capitalization which looks further into the future and attempts to estimate return over a projected holding period (typically 10 years).

David Morgan Consultant

I buy apartments fast in San Antonio, Texas, any condition.

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