As you are getting started in commercial real estate investing, or residential flipping, ask yourself, “Do I run a house-flipping business?  Or, is it a real estate business that flips houses?”  Are you working for tips? Let these commercial real estate investing tips help focus your approach to investing.

There are a few  key tips for you to consider as you are getting started in commercial real estate investing, or residential flipping.  Ask yourself as you begin, “Do I run a house-flipping business?”  Or, “Am I running a real estate business that flips houses?”  Do you see the difference? I can teach you how to do one deal, but what is that going to do for you? You just make one deal, right?  Let the following real estate investing tips help focus your approach to investing.   

 Create a Business with Systems:

 HIS Real Estate Network teaches creating a business that has a “system” that will generate residual income for you. That’s the difference. What I want you to start thinking about, the need for you to see residential and/or commercial real estate investing as a business. That’s what this is. You are not flipping houses; you’re in the residential and/or commercial real estate business.

 If you operate your real estate investing like a business, guess what happens? You don’t do just one deal a year or one deal a quarter; you do a lot of deals consistently. Why? You’re running it like a business. That’s the difference.

 Whether you are involved in residential flipping or commercial investing, it is important to know that you are running a business.  And, if you are focused on residential, you may want to look at the viability of adding or shifting to commercial ventures.

Determine your income needs to meet your obligations, reach financial freedom?

 Now I don’t know what your income stream is right now, if you make $4,000, $5,000, $6,000, $7,000, $8,000, $9,000, $12,000 or $20,000 a month in payments so that you can live. In other words, what amount of income do you need to come in every month so that you can pay your bills, and be free?

 If you just did a couple of deals and every month they were paying your bills, even if it was just $6,000 a month, would that be financial freedom? Financial freedom might mean you could just roll out of bed and be like well, “Today I don’t feel like working. It’s okay because my mortgage is paid, my kids have food, we’re going shopping and we’re going to Disney.” That makes a big difference.

 A residential business with solid systems can do a portion of that to a degree, which is one way to maximize the returns quickly because that’s what the vehicle is there for.  But, what we really want to do is take that money that we’re repeatedly making on the residential flips, and take a portion of that, right now, and put it to work for us long term.

Ask yourself if you are “working for tips?”

 Does anybody know why commercial is so sexy to us?  Money for trailing dollars… Passive income. Residual income. Commercial market crash. That’s definitely a door for it right?

 We used to just be residential and we had it down pat to a science. We could do a webinar and flip 20 properties in that webinar. It was good. We had the system down and I was bragging about it to some older guys who couldn’t stop laughing at me. 

I’m offended. I’m literally offended because I’m doing deals so I’m a player, and these guys are laughing at me. I asked, “Why are you laughing?” And, one said “Because you’re working for tips.” Think about that concept for just a moment. I’m working for tips. I’m making money, right? Yes, but the moment you stop working that business, guess what happens? You stop making money.

Then he said something that really hit me. “When was the last time you flipped a house and the house deal paid you every month after that?” I had no comeback for that. I just had to bow out, put my tail between my legs and say “okay”.

 Well, what happened was I saw the light.  I bought one commercial deal, I made money when I bought the deal, and I’ve been making money for the last 11 years as a result of that one deal.  You can’t compete with that. Do you follow? So the rate return may not be your 30 or 40% on a flip, but at the end of the day it’s an infinite return that’s paying every single month.  Do you follow that?  Every single month!

Now we are getting that residential income flow every single month. It only takes two or three deals before all the sudden you’re like hey, I can be picky now. I can relax because every month there’s a check coming in the mail. How many of you would like to do that? Absolutely! Me too!

So as you are getting started in commercial real estate investing, or residential flipping, be sure to run your investing as a business with systems, know how much income you need to generate from your system to reach financial freedom, and stop working for “tips” as you transition to commercial real estate investing, if you’re not already there.

Rick Melero

  P.S. If you’re serious about making money NOW in commercial real estate, while building long-term wealth, all by learning how to re-position yourself to achieve INFINITE returns then you must attend our next live educational online webinar with America’s #1 Real Estate Network™. Register here, right now as a guest of Rick Melero and unlock the secrets to 6-figure paydays and awesome monthly cash flow per deal:

http://www.hisrealestatenetwork.com/383

 

 

3 Reasons Why You Should be Investing in Commercial Real Estate

Is investing in commercial real estate a better investment than investing in residential real estate? Now, we all know that real estate in general is a great investment vehicle and both residential and commercial properties can be good investments. Either avenue can have a tremendous effect on your net worth, but most people think only of residential property when they think about investing in real estate. While this is certainly the most viable route for most people, commercial property can offer additional benefits that residential real estate can not.

3 Reasons Commercial Real Estate is Better than Residential Real Estate

1.) Commercial Real Estate Gives You More Access to More Capital
It has been our experience that it is somewhat easier to raise larger amounts of capital (under $3M) for a commercial deal than it is to raise $150,000 for a residential deal. As a residential investor your access to capital is limited primarily to traditional financing, hard money lenders, and private money from individual investors. If you are unable to raise capital from one of these three avenues, then you are forced to acquire property in more of a creative manner with owner financing, subject to strategies, lease options, etc. This in itself is not a bad thing, but unfortunately you will have to walk away from some good deals that can’t be acquired with creative financing techniques.

In commercial real estate it is more common for investors to pool their capital together and syndicate deals, you will also find that smaller private equity firms and finance companies are more inclined to do joint venture projects and provide the needed capital to complete the deal if the deal makes sense. So as a commercial real estate investor you have the potential to raise capital for a deal from the same traditional sources as residential real estate i.e. Traditional Financing and Hard Money, but in addition to that you can have access to capital through smaller private equity firms, hedge funds, private REITs, investment groups, etc.

There also seems to be a sense of intrigue and prestige when it comes to investing in commercial real estate. Perhaps because of the current commercial building market it appears investors are trending to investing in commercial projects.

2.) Commercial Real Estate is Less Competitive
When you think about it from a marketing perspective, most investors target residential property owners, thus making the residential market more competitive. In many arenas from industry news sources, the World Wide Web, all the “We buy Houses” signs on virtually every city corner, discuss marketing tactics targeting residential property owners. If you take the same marketing strategies discussed and apply them to commercial real estate, you will probably find that you are the ONLY person contacting these commercial property owners in regards to selling their property. Most commercial properties under $5 million tend to be too large for most residential investors, yet too small for most institutional investors.

3.) Commercial Real Estate allows for “Forced” Appreciation
Residential real estate is typically valued based on other comparable properties that have sold in the area that are similar in features. If the “comps” for a 3 bedroom/2 bathroom house in a particular neighborhood is roughly $100,000, then your property is probably going to be worth $100,000. It doesn’t matter too much that you have additional features, or that your house is getting $900 a month in rent as opposed to the house down the street that is only renting for $700 a month. All things considered, your property will still be valued pretty close to the “comps” of the area.

However, in commercial real estate, the valuation of a property is based on the revenue that the property generates. Now, commercial real estate is still subject to the “comps” of the area as it pertains to “How” that revenue is valued in terms of capitalization rates. But, the overall premise is that, the more revenue a property generated, the more that property is worth.

So, in order to “force” the appreciation of your commercial property, you need to find additional ways to increase the revenue that the property generates. A small increase in revenue can increase the value of a property significantly depending on the “Cap Rates” in the area for that type of commercial real estate. Unfortunately, with residential real estate this isn’t an option as you really can’t force appreciation; your property will be valued in the general range of the market comps.

As you can see, commercial real estate offers many benefits over residential real estate in addition to higher returns on your investment.
Now of course there are disadvantages with any investment vehicle, commercial real estate included. However, consider the following when choosing between residential or commercial investing to create your passive income stream;

Commercial vs. Residential:
1) The building qualifies for the loan; Not the borrower
2) The building pays back the loan; Not the borrower
3) Others are expected to manage the building; Not the borrower
4) Income determines the value of the property; Not the comps
5) Cap Rate measures demand for the property; Not the comps.
A commercial property’s value is eternally tied into the income the property produces and the overall demand for the property’s services based on its location & its highest & best use.

 

I came across so much discussion about the "CAP RATE" and everybody uses this term but the interpretation varies from person to person.  I posted this at my blog post a little while ago, but I am hoping this will help clarify what is the cap rate is. 

The value of an income stream is evaluated subject to 5 factors:

1. Total Capital Required- The more capital required to purchase or produce the income, the less valuable the income is.

2. Risk-An income stream that has a greater chance of diminishing or completely disappearing is not as valuable as one which is more reliable and probable.

3. Effort- An income stream which requires more effort such as management, maintenance, upgrades, to achieve it is less valuable.

4. Time- The more time it takes to achieve the income, the less valuable the income is.

5. Opportunity Costs- The higher the opportunity costs of foregoing an alternative investment, the less valuable the income stream from the realized investment.

In a commercial real estate discussion you often hear the term Capitalization Rate (Cap Rate).  You will see that buyers,  sellers and lenders use this term to determine the value of a property. You need to know that making an investment decision solely on Cap Rate well may lead to bad investment decision.

Cap Rate is the ratio between the net operating income produced by an asset (property) and its original price paid to buy the asset.  Cap Rate can be considered the percentage return earned on your real estate investment during the first year of operations.

CAP RATE =ANNUAL NET OPERATING INCOME/COST (PRICE)

Take note of the limitations of Cap Rate.   It assumes that the investment will be paid for in cash because Net Operating Income does NOT take Debt Service (Mortgage Payment) into account and that it is only as accurate as the numbers used in the calculations. (Based on actual operating number, NOT Proforma Number)

A cap rate is a point-in-time measure.  It does not take into account: future performance, non-operating expenditures (ie, leasing commissions, capital improvements), effects of leverage, effects of tax, underlying property appreciation, or timing of cash flows.  In short, it says nothing about overall yield.

The real question in valuation is not how much someone else thinks a property is worth, or the value estimated from a cap rate or other market measure of value, but rather the value at which you can attain your investment goals and which reflective of borrowing power at least.  In order to find the value at which the funds are available to pay the debt service and the investor’s required return on equity, we must derive a capitalization rate from the terms of both. This is known as Derivative Capitalization Rate; also know as the Band of investment method of calculating value.  We must determine as follows:

ETV x equity constant (required return expressed in %) + LTV x Loan Constant (Annual Debt Service $/Principal$) =Derivative Cap Rate     

NOI/Derivative Cap Rate= Max Price to the property.

Realistically however, the seller may have different ideas about what his/her property is worth and may decide not to sell to any particular investor if the price and the term of the sales don’t meet his/her needs.  The ability to strike a deal obviously depends on the ability of the buyer and seller to agree to terms of which price is one component of negotiation between them.   Based on other investment opportunities available to a particular investor at that particular time, investors decide how much return is required from any particular investment in order to deploy capital.  The real estate is really the conduit of the income stream.   It is the business of the real estate that investors are buying to earn the income stream.   Therefore, investors need to analyze and protect income stream by understanding the factors that affect it during the acquisition, the holding period and disposition. We want to focus on the market where our investment criteria and return can be achieved.

This is one of my previous blog post@ http://realestateinvestordigest.com

 

Hi just some info to share with you. Also click on the pdf link  Share This:

State of the Commercial Real Estate Market   The Association of Insolvency and Restructuring Advisors (“AIRA”) put on a webinar on the current state of the commercial real estate market.    A couple of items of note: CRE transaction volume down 75% from 2007 Few Class A properties on the market, which is bidding these assets up to 2007 levels Apartments at 5% cap rates Still a wide bid/ask spread Moody’s index down 42% from the high Banks and CMBS hold $2.4 trillion in loans with a market value of $1.8 trillion, a value cap of $600 billion 9.3% of CMBS loans are delinquent; $50 billion in new CMBS origination in 2011 FDIC is moving assets much more slowly than the last cycle A trifurcated market has developed in which Class A properties trade at 2007 cap rates, distressed properties  at low properties, and everything in between is not trading Pros to invest in real estate: Prices, Good financing, Low Supply, and Inflation Cons include: Struggle for demand, Flat rents, and Uncertain tax policy Real Estate Executive on Office   In an email to the staff, a senior real estate executive opined about some of the challenges in the current office market.      “As many of you know, I am ‘bearish’ on office properties in general, and multi-tenant office properties, in particular.    Office properties come in two general types.  Type A includes the net-lease properties, wherein the building is net leased to a single tenant.  If the tenant has good credit, the investment works well for 5 to 10 years, but then often ends up not financeable, or totally vacant, requiring large capital expenditures to attract and install new tenants.  Re-tenanting involves large brokerage commissions, significant tenant improvement costs (remodeling), and long periods of down-time during which no rent is being paid.   Type B includes multi-tenant office buildings, wherein you have a number of smaller tenants who are constantly moving in and out or changing their space requirements.  Generally speaking, two things can happen to these smaller tenants.  First, they can do very well and need to expand.  If you cannot accommodate them, they will move out of the building. On the other hand, the tenants who do not do well go out of business, which also causes them to move out of the building.    Generally speaking, the only people who make money on office buildings are the ones who build them, lease them up, and sell them.  The other exception is to find an office building in a unique location of high demand and no competition.  There are very few properties like that, but they do exist.   The next big problem to hit office buildings of both Type A and Type B (net lease and multi-tenant) is ‘shadow space.’   Shadow space is the empty space in office buildings where tenants have moved out but are still paying rent until the end of their lease.  We are now seeing a large number of leases expiring and the additional vacant space is hitting the market.  When you take into account the current high vacancy rates, and you add to that the unreported shadow space that is available, office properties may become even worse investments than they currently are.”

Hi everyone, I wanted to comment on the MP3 download I listen to within the last few hours on Jason Gilbert. He is a commercial real estate investing guru who focuses on Joint Venture Facilation (JVF) for land owners/developers and Master Lease Option (MLO) for income property. Jason says that these two techniques are rarely used in the commercial industry. Here are a few tips I took from the MP3 download: 1.) Target and locate properties in good condition but under producing or performing with poor property management, marketing or both. 2.) Lease property for the net income that the property is earning, then sub-lease each unit to the tenants that are renting the units. Then fix property management or the maintence problem. 3.) You pocket 100% of the new income by filling the vacancies, raising the rents, lowering the expenses or a combination of all three. 4.) One is creating tremendous value in the property by raising net income. 5.) Master Lease Option takes no money to enter into the lease and you have complete control of the property. A (MLO) is a try it before you buy it option, lease all units first then get massive cash flow but at a hugh discount. I hope this help out anyone that's interested in commercial real estate investing. Dara C

 http://interactive-media-network.com is an interactive ad agency that will increase website traffic through media buying services, email marketing, search engine optimization, mobile marketing, affiliate marketing, and banner exchange.  We create your marketing materials.  We offer for sale eLearning in Real Estate, Business, Marketing, Mobile Marketing and Templates as well as a variety of physical products such as books and home and business furnishings. We also have a real estate network and find commercial properties for real estate investors as well as residential properties- 3 bedroom, 2 bathroom +. 

The first thing I do not want to do, is write a book here unless I am inspiring someone.  When I do inspire my friends, colleagues, and family, are the things that I get done or by my accomplishments.

I'm best described as Creative, Honest, Motivating, Persistent, and Reliable.  I have been in the Dental Lab business for over 25 years.  Then I thought, there has to be more to life than living by paycheck to paycheck! (and I mean small paychecks after expenses and overhead)

Goals need to challenge your capacity or beyond your current capacity. They will stretch you and mold you into a new person. Jim Rohn wisely said, "It’s not the money that makes the millionaire successful; it’s what he had to become (as a person) to earn a million dollars." If you took the money away from that millionaire, that millionaire would make it back twice as fast as before, because he learned the skill to make it in the first place.

I am a MASSIVE ACTION TAKER! If there’s something that needs to get done, I have to get it done Now! And not later. 

 I am also a risk taker and only want to work with Rock Stars like Danny Welsh & Rick Melero and other mentors in the MMM Challenge.

If these skills help me to get in this challenge, that will be awesome!

I specialize in random order: All Handyman skills, computer literate in PC and MAC, Internet marketing, social networking, Videographer and editor,…etc.  I also have a compiled buyers list

From this Short Sale team I was working with, which fell apart because the banks were not cooperating here in SoCal.

This billionaire Richard Branson inspired me with this quote:

“screw it! Let’s do it!”

All I can say is, if you pick me, I will never let you down because I am ready to turn Southern California around.  A Win Win situation!

Failure is not an option, but if I fail at anything, I will pick myself up and start over.  I am self-motivated and self-disciplined.

“I have the sense of urgency and the speed of implementation”

Let’s seriosly get this thing done!,

Arnold Castillo

You won’t believe the number of our clients that have transferred their 401k or IRA into a Self Directed IRA. In fact, since the year 2000, the number of self-directed IRA plans has more than doubled. Why? Because Self Directed IRA’s allow ordinary investors to take control of their investments. People are tired of watching their nest eggs disappear due to mismanagement, corporate fraud, stock crashes etc.

Investors want to own hard assets that generate income every month with long term stability. Imagine purchasing a tangible real estate asset in a tax deferred or tax free environment. With the incredible real estate buyer’s market in both commercial and residential, many investors are doing just that. Have you made the leap yet?

If not, here are some benefits that I hope will challenge you to take control of your retirement funds.

1.A self directed IRA allows you to have complete control over your Individual Retirement Account funds.

2.Limited custodial Fees! When you take control of your retirement accounts you also lower the costs associated with managing those funds. The less you pay out, the bigger the ROI.

3.They offer great investment options. Since most traditional IRAs only permit investment options in approved stocks, bonds, mutual funds, and CDs. This type of IRA allows, in addition to the following investment types, real estate, notes, tax lien certificates and private placements.

 4.You can put your money to work with our complete turnkey commercial and residential investing operation. You can now grow your Self Directed IRA with both equity growth and a safe steady stream of income.

So if you have not done so already, what are you waiting for? Contact our office and we will refer you to some of the top Self Directed IRA companies that we work with. It is time to take control of your retirement funds and safely investment in cash flowing tangible assets. Don't gamble with your future! 

Rick Melero

(407) 490-2447

www.RealDealCommunity.com

This is another one of our Real Deal Commercial students that is TAKING MASSIVE ACTION. He is working with us through our Co-Sponsorship Program on a $2.5MM Commercial Project.

In Commercial Real Estate, the numbers are the key to establishing the value of a property. In the first stage of evaluation,  the investor will want to determine the Net Operating Income of the subject property. Now... You may be asking yourself... "What is the NOI?"

Here is a quick definition.

Net Operating Income. Is the income after deducting for operating expenses but before deducting for income taxes and interest.

Here is a quick break down of how you would arrive at the NOI.

INCOME

  Gross Scheduled Rent Income                
  + Other Income                
TOTAL GROSS INCOME     

- VACANCY & CREDIT ALLOWANCE

= GROSS OPERATING INCOME

- Operating Expenses :
  Accounting 
  Advertising            
  Insurance (fire and liability)  
  Janitorial Service
  Lawn/Snow
  Legal
  Licenses
  Miscellaneous
  Property Management
  Repairs and Maintenance   
  Resident Superintendent     
  Supplies                    
  Taxes
     Real Estate              
     Personal Property        
     Payroll                  
     Other                    
  Trash Removal               
  Utilities
     Electricity              
     Fuel Oil                 
     Gas                      
     Sewer and Water          
     Telephone                
     Other

= Net Operating Income

The NOI is  often viewed as a good measure of the income producing asset's performance. Many investors believe this figure is less susceptible than other figures to manipulation .

We talk in more detail about commercial investing in our Real Deal Webinars. Make sure to RSVP for our Next Call.

Regards,
Rick Melero
www.HisRealEstateNetwork.com/commercial