Greetings from the metropolis of Cedar Crest, New Mexico.

After a series of road trips to Arizona….Texas….and New Mexico….it is good to be home and good to be writing again.  I have had a blast exploring, discovering, and experiencing the Southwest with my family.

During all my expeditions, I have been thinking a lot about my next moves with regards to  my commercial real estate investing and my businesses.  The one thing I believe, with all the chaos in our economy, is that this is the most opportunistic time (for strong investors) will see in a long time.

I received an email from my commercial mortgage broker, Terry Painter, that encapsulates the opportunities that exist today for the “strong Investor.”

“Hi Rob,  It appears to me that commercial prices are starting to come down a bit, but usually after negotiating.  This is your standard MO so I think you should do well in this economic environment.  Many investors don’t want to face that their values have gone down and are refinancing.  Many of them no longer qualify to refinance their properties. Often the properties qualify but the borrowers do not due to tighter underwriting guidelines and a drop in personal liquidity and credit.   There is strong opportunity for stronger investors to swoop in right now.  Lets keep in touch my friend,  Terry”

Photo Credit: Sarah Giesecke

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Tags: commercial investing, Commercial Real Estate, Credit, experience, liquidity

Realtor Listed Apartment Buildings

A listed apartment building is simply any multifamily property whose owner has decided to sign a listing agreement with a licensed real estate agent. Most listings for apartment buildings will be held by a commercial realtor who has experience multifamily with properties. This can work to the buyer’s advantage because the listing agent will be familiar with the analysis that goes into buying a multifamily property. The buyer should always be aware, however, that the listing agent only has a fiduciary responsibility to the seller with whom he or she has a signed listing agreement. This means that all facts and figures on the financial should be verified as best as possible. Don’t take the seller’s real estate agent’s word for anything. Check and double check the facts first before you make any decision to buy.

It is also important to remember that right now the market for multifamily properties is hot. With a listed apartment building your offer and interests will be competing with more buyers. This can potentially increase the price beyond profitability. Just because there are 15 other buyers willing to pay a certain price for the building does not mean that the property is worth that much. Apartment building investors need to have a clear method for analyzing a property’s profitability. If the building doesn’t meet your criteria or your goals the most profitable thing to do is to walk away.

Unlisted Apartment Buildings

Unlisted apartment buildings are any multifamily building that is for sale but not listed on the multiple listing service or with any realtor. Unlisted multifamily buildings offer both potential risks and rewards. The risks with an unlisted building include not being able to have access to all of the necessary records and information on the property. You many not have very accurate financial information for your property analysis. This will require you to do more due diligence of the property. You may also encounter owners of these buildings who have unrealistic expectations of the price they should receive when selling the property. This can be because the owner hasn’t raised rents to the market level while he is comparing his property’s sales price for the price that similar buildings. What these sellers fail to realize is that apartment building values are determined by the net cash flow on the building which is directly influenced by the gross rents. Therefore, a building with below market rents will not be valued as highly as the building that does receive market rents.

Photo Credit: Joe Gatling

Tags: apartment building, apartment building listing, apartments, buy apartment building, Commercial Real Estate, where to buy apartment buildings

During my long drive to the great state of Arizona, I had a lot of time to think.  Specifically, time to think about all that is going on with the real estate market.  Of all that is happening in our economy,  the one thing I know is that the worse things get the more opportunities there will be.  But when will the opportunities show up?  Well….if you have had your ear to the ground ….compared to that last few years…the opportunities have arrived…or have they?  I am  a believer that things have not bottomed out and I think things are going to get much worse.  So…with that in mind, better opportunities are still coming….right?

But ….I am tempted

You see, I am having an emotional dilemma.  What if things have already bottomed out?  Will I miss out on the current opportunities if I do not move now?  If I make a move, what markets should I look at?  All of a sudden, I realize I am asking the same questions I asked myself last year and the year before….and the year before that.

Is there such a thing as “recession proof”?

Now add to my dilemma the theory of a “recession proof” market.  The one thing I am hearing over and over…is that there are real estate markets that are recession proof.  Is there such a thing?  From all my time in business school the one thing I remember is cycles travel.  In other words, all markets will get hit…it is just a matter of time (only the severity of the hit is unknown)….like a ripple effect.  For example, as we watch California’s real estate market fall into the sea….Oklahoma is still going strong.  So strong that the state brags about it.  But if cycles travel…is it just a matter of time?  In theory….yes.

A close friend of mine who is a “self-proclaimed” economist states that the Dallas/Ft. Worth area is recession proof.  I also heard that Oklahoma City is recession proof.  So…as nice opportunities come up in these areas….I am tempted.

What to do?

Develop an Investment Criteria

Late last year, I wrote down an investment philosophy for myself on how I was going to invest for the next few years.  The overall theme of my philosophy was to be a “vulture investor.”  In other words, the plan is to act on opportunities that are “cherry deals.”  The cherry deals had to have the following “aggressive” criteria:

1. Blue collar assets.  Investments that tailored to lower income populations.  Class C apartments, “Thrifty” retail,  mobile home parks, etc.
2. No land…unless I have money to park long term
3. Seller Financing or partial seller financing
4. Purchase at sixty percent of value or less
5. Positive demographics
6. Familiarity with the area
7. Solid property management in the area

Now…there is more to my criteria….and a lot of room for a “case by case” assessment…but every time I am confused or “tempted,” I reveiw my investment philosophy, make adjustments, then make a move.

Needless to say, I have yet to make a move to aquire an asset in the last several months…but not because of the lack of action but because the opportunies have not met my investment criteria.

So….to keep from making emotional mistakes….developing an investment criteria before acquiring an asset can keep you from being a lemming.

Until next time……rob

Photo Credit: DanieVDM

Tags: commercial investing, Commercial Real Estate, investment, real estate, real estate investing

The first purchase of an apartment building can seem like an overwhelming endeavor for the buyer. There is a lot of information and terminology that is suddenly thrust upon the first time investor and chances are that the new investor doesn’t have the knowledge base to accurately sift through the information to obtain and utilize the most important facets. For example, the new buyer may be staring blankly at the rent rolls for a twenty unit apartment building for the last two years and not have any idea how to dissect that information. Or the new investor may be looking at the income and operating expenses supplied by seller’s realtor and not be able to determine if the information supplied is accurate or even complete. Therefore it is wise to follow a few easy steps before actually purchasing an apartment building, of any size, as an investment.

1) Get an Education — It is necessary for the first time apartment buyer to get the best education possible before actually making the first purchase to make sure that he or she understands exactly what they are entering into and to be sure that they are prepared for any challenges that may arise. The education of the first time apartment buyer should include both an academic and a real world, experiential, component. The academic education should consist of reading as many books as possible about the subject in order to learn the technical terminology and to learn how to do simple financial analysis that will allow the investor to make intelligent comparisons between different properties. The real world component should consist of talking to and meeting with as many other commercial property owners and investors as possible. This can be accomplished by joining real estate investment clubs and meeting commercial realtors

2) Find a Qualified Commercial Realtor — While finding a commercial realtor is not an absolute necessity for finding a great apartment building investment many commercial realtors may know about sellers who don’t actively list their apartment buildings on the market for sale but are anxious to sell none the less. It may also help the first time buyer to have a realtor that will represent him or her when it comes time to make an actual offer.

3) Start Comparing Apartment Building Properties — One mistake that I see novice apartment building investors make, time and time again, is that they let their emotions rule over clear analytical thinking. Because many apartment buildings for sale are priced beyond their ability to be profitable it is important for the first time investor to carefully compare the investment returns offered by one building to many others that he or she has examined to find the one that is the best fit.

4) Find Apartment Building Financing — There are many different methods to obtain financing for an apartment building investment. Some of them include traditional bank financing, hard money loans, a limited liability partnership and owner financing. Each deal will hinge upon the kind and availability of financing for that particular property.

Tags: apartment, apartment building investing, apartment investing, buy apartment building, Commercial Real Estate, how to buy apartment building, landlord, real estate

Greetings from a jam-packed airplane headed North. I am on my way to go Walleye fishing in South Dakota. I am not an avid fisherman by any means and I have no idea how to fish for Walleye….but off I go to make new friends and to reconnect with another.

Anyways….

As some of you know, I have been working on refinancing my shopping center for almost a year now….and guess what? We closed!!! As my attorney, Jay, said…”…what an ordeal.” An ugly ordeal it was….thankfully with a happy ending due to the work of my mortgage broker(s).

I have three strong (at least I think) relationships in the commercial mortgage business. Not only are they my friends but they are amazing at what they do. I consider them the best in the industry.

1. Brandon Haddon @ Omni Credit in Denver, CO
2. Scott Nelson and Karla Lyngvar @ Lyngvar Financial in Sacramento, CA
3. Terry Painter @ The Business Loan Store in Milford, OR

I now use all three in every deal I do. “How so?” you ask….well….let me explain.

The subject is an eighty-three thousand square ft, class C, retail shopping center located in West, TX. Solid cash flow, solid tenants, great history, great city, etc…. but there were a few issues:

1. Environmental Reports were not conclusive
2. Lease terms for credit tenants were up for renewal in the next few years
3. Loan needed to be defeased
4. A weak economy and tight credit (and getting tighter)
5. and on and on….

I started with Brandon Haddon at Omni Credit first. Brandon had pulled off a miracle the year before by refinancing my mobile home park which I acquired via a lease option. Many mortgage lenders, including Terry from The Business Loan Store said I could not do the deal without me having to put 20% down….and I could not pull cash out. Brandon was able to do the deal for me. Not only was it a no money down deal…I was also able to pull cash out… a no money down commercial real estate!

Now….the shopping center was a difficult deal for several reasons but the first hurdle was the environmental report. Many moons ago…there was a gas station on the premise. The gas station and the underground gas tanks are long gone. BUT…the tanks at one time leaked. Now, to understand the problem fully, the property where the gas station once stood was not part of the shopping center and not part of the loan…but because it was an adjacent property, the lenders had concern. This issue caused my first mortgage broker (Brandon) to fall off. I felt that Phase One environmental report would suffice and that a Phase Two was not needed…and I stuck to my guns. But the lender Brandon was working with (Union Bank of California…which screwed me once before via another mortgage broker) felt that a Phase Two was needed….even though, at one time, they were fine with the Phase One report (go figure).

Next…I decided to “two fist it” and go to both Scott/Karla @ Lyngvar Financial and Terry Painter @ Business Loan Store. Karla and Scott felt that I would need to do a Phase Two. Terry on the other hand thought I had a good chance of avoiding the Phase Two. So I went with Terry.

Now, I have dealt with Karla and Scott on a personal level….and they came through on a big way later in the process.

So…Terry and his right hand, Sarah, went to work. There were so many issues (the list above) but Terry was able to get me a lender commitment on the property. This was a huge accomplishment because Terry was able to bypass the need for a Phase Two as well as manage the lender regarding the changes in the economy and the impact on the rates. Not to mention dealing with the defeasance.

Now, when I got the commitment, I sent it to Scott at Lyngvar financial to see what he thought. Scott said “Rob, I would love to do this deal for you but I cannot beat this commitment. You are getting the best terms in the market. I cannot even come close.” Wow….at that very moment, I knew that I was going to add Scott to my commercial mortgage team. Integrity in the mortgage business is hard to find…..as if you don’t already know that.

I needed Brandon, Terry, and Scott to get this refinance done. Even though only one mortgage broker was able to close the deal, they all played a huge role.

“Okay Rob…so what?”

Well….having different mortgage lenders in your corner is crucial. Mortgage brokers have relationships with different lenders. Just because one lender cannot do a deal does not mean that all lenders cannot do the deal. Even when it comes to environmental issues, terms, market conditions, etc., different lenders handle issues differently.

Also, having mortgage brokers that you trust will go a long way in avoiding losing money and time. Have a resource you can trust to confirm if you have a good loan commitment or not is a HUGE plus.

I have been burned by several brokers in the past that I have contacted through forums or newsletters (I have never had a good experience). I have always lost money and or time dealing with people that I do not have a relationship with. But I have had great success from those recommended to me. I met Terry at a commercial real estate seminar that we both spoke at. I met Brandon through a friend of mine that highly recommended him. I met Karla through a friend while I was in Sacramento. I highly recommend all three of them.

I am very thankful for Brandon, Karla, and Terry for helping me get through this “ordeal.”

Until next time……rob

Tags: commercial loan, commercial mortgage, Commercial Real Estate, lending, Mortgages

Hello from the metropolis of Cedar Crest, NM.

I am getting ready to take twenty kids from my youth group up to Durango, CO for the Christ In Youth Conference (www.CIY.com).  I think I am more excited than my high school kids are…..it is always a blast.  I am so grateful for commercial real estate because it allows me to do what I love to do….such as hang out with my youth group for a week long conference and go crazy (I can legally do this you know).

Anyway….Let’s talk doom and gloom….

Almost every article and blog on real estate is doom and gloom.  Forget real estate…almost every article on the economy is surreal and very scary.  It reminds me of the months before Y2K.  Remember Y2K?  If not….recall the panic starting in 1998 about how the whole world was going to turn the off switch because computer ‘date’ glitches.  Which may explain the year supply of beanie weenies and water in your garage. I remember how gas generator prices went through the roof.  Yes…I got caught up in all that too….not the beanie weenies….but the hype.  Is all this commotion just hype….or are we really heading into a disaster?

The fact of rice rationing, fuel prices, natural disasters, record breaking foreclosure rates, the sub prime crisis, Bear Sterns, etc….makes the future look rather dismal.  If history repeats itself (which it seems to always do…good and bad) then yes…it is going to get bad…then it is going to get worse.  But the one thing I have learned is that there are always survivors.  Actually, there will be a group of entrepreneurs that not only survive….but gain mass wealth in these troubled times.

Well…so what, Rob?

Well, there are going to be a number of things that this group of entrepreneurs will do (or currently doing) that will set them apart.  Instead of me writing about the Top Five Things You Can Do To Survive The Coming Storm…I am going to use some reverse psychology and tell you how to fail.  Why?  Well, because the 80/20 rule (Pareto) applies…so most investors will fail (pretty harsh huh?) and I am not immune to the failure I am writing about.  As a coach to many real estate students….I sometimes go by my own rule…”Do as I say, not as I do.”

So….here they are….Top Five Ways To Fail As A Commercial Real Estate Investor In The Coming Economic Storm (why only five?  Well…because there are about a hundred ways to fail…who will read that?)

1. Be over-leveraged

   Make sure that you are mortgage to the hilt on all your assets. This is a surefire way to make you scramble and panic as you come to the realization that you are upside down and if you sell…you will sell at a significant loss….  Even better….if you have any equity in your assets….leverage that too and buy more highly leveraged real estate.

2. Rely on your own inexperience

   Ignore your mentor’s advice…or better yet, do not get a mentor.  Mentors have a lot of advice based on experience.  If you want to make sure you fail.  Don’t get a mentor….and if you already paid for one…make sure you ignore his/her advice.  Don’t fall into the trap of being a student.  Your intelligence based on your inexperience is the best way to fail with flying colors.

3. Be Cheap

   Make sure and do not spend the cash for a great real estate attorney or an asset protection attorney.  This is a must if you plan to fail well.  If your spouse or “partner” is giving you hell about getting an attorney….buy a book “Legal Advice for Dummies” or better yet…sign up for pre-paid legal.  This way…you will still fail…but not fail fast.  Also…make sure you do your own taxes and bookkeeping.  CPAs and bookkeepers are for successful people….

4. Be a Lone Ranger

   If you hate to “network”…then failure is at your doorstep.  Make sure you are a loner and if you hate people….this is even better.  By no means should you build “wealth lifelines” with those that can help you succeed.  “Success breeds success” so say away from building relationships.  Of all the ways to fail…this, by far, is the most successful way to shoot yourself in the foot.

5. Don’t sell
   

   This is a great time to be greedy and hold out for your asking price.  Just because values are plummeting does not mean you should give in to lowering your price even though your are getting your return on your investment if you sell.  Most successful real estate investors are moving (or have moved) to a liquid (cash) position (getting ready to take advantage of plummeting values).  By no means should you sell anything you have.   Any equity you have will soon disappear and this my friends will help you owe more on your assets than what your assets are worth.  Most experts ( Robert Prechter, John Williams, Nouriel Roubinii, and Harry S. Dent) are ranting about how property values are going to go down the toilet.   Imagine selling your property today and buying it back at 40 - 60 cents on the dollar?  If they are right….then make sure you stay greedy.  The way to do this is to get emotionally tied to your properties…then your assets will be much more difficult to sell.

An Apology…..

Yes…I am being a drama queen and exaggerating everything….but there is a “nugget” here that I have learned and I hope to pass on to all of you.  I have had the honor of learning commercial real estate from some wildly successful people.  I have listened closely but in some cases I have not taken their advice.  Watch those that are doing well…the great ones do well in good markets and in bad ones.  See what they do and model them.  The great ones are in a liquid position because they sold when the market was buying high.  Now they are waiting to buy as the market plummets. Does the phrase “Buy low, sell high” ring a bell?  In some cases…it is that simple.

Until next time…….rob

Tags: advice, Commercial Real Estate, commercial real estate investor, real estate, real estate blog, real estate leverage

Greetings from the metropolis of Cedar Crest, NM.! I just got back from taking my youth group to The Red Letter Rock Fest in Snyder, TX. A whole lot of driving, a whole lot of rockin’ and a whole lot of wind. Nothing stops the wind in West Texas. Never the less…..the kids had a blast and I lost my hearing. Wow….I am still recovering from the trip. Two hour naps in the middle of the day are part of my rehab….and possibly a part of my every day routine from now on.

Anyway…..

Like most real estate investors, I began with “no money down” residential deals. After a year or so of investing in houses, a few commercial investment opportunities came up and I made the jump. Although I still have several residential investment properties, commercial real estate is my preference.

There are several reasons why I like to invest in commercial real estate but the risk level is not one of them. There is a lot of risk involved in commercial real estate investing that goes beyond the asset and how the markets are doing. The “real” risk in commercial real estate investing is the fact that a large commercial deal will entail a lot of money and a lot of people. Money and people can be a lethal mix in any business transaction…especially large commercial transactions.

Before you run to the hills, understand that risk is just part of doing business and not a good reason not to invest in commercial real estate. The pros definitely out weight the cons (my opinion of course).

The bad news is there is no way to get around the risks when it comes to mixing money and people but the good news is there are actions you can take to minimize them.

So….what can you do to minimize the risks (mixing money and people)?
Plenty….

1. R.E.S.P.E.C.T.

   Before you do anything….have a healthy respect for your deal. Respect for your investment with regards to risk will drive you to take the precautions necessary to protect yourself and your investors (if you are recruiting investors).

2. Pay for good Advisors

   Your advisors are an important part of your team. DO NOT BE CHEAP! Good advisors (real estate attorney, asset protection attorney, CPA, mortgage broker, real estate agent/broker, insurance broker, property manager, mentor, etc.) are worth their weight in gold. Be willing to pay for it. Don’t cut commissions, don’t use prepaid legal, and don’t take short cuts when it comes to your advisors. Don’t ask your uncle Vincent because he had a year of law school.

3. Accept the advice from your advisors

   Okay….I know what you are thinking….but many people will listen and ignore their advisor’s advice. If you are going to pay your attorney $400 an hour….make sure you use the advice you are given. If you do not agree, get a second opinion but never ignore professional advice. Sure…question the advice and seek alternatives but ignoring advice will hurt you.

4. Partnerships

   I can go on and on about partnerships. I have had horrible partnerships as well as great ones. The problem is that horrible partnerships linger like garlic. Partnerships are like parenthood. It is easy to be a parent but difficult to be a good one. Time and time again, I have counseled many of my students on partnerships. The key thing I have learned is to prepare for the worst by having an operating agreement in place (done by an attorney). If things fall apart, your operating agreement will help soften the breakup. If your operating agreement is not done well, it could get ugly.

Obviously the list is much longer but I think you get the point. Being prepared for the worst will allow you to expect the best from your investment. Once you protect yourself on the “mixing people and money” side of the transaction, you can focus on the risks associated with the property. Market conditions, due diligence, real estate cycles, and all the other fun stuff.

Until next time……rob

Tags: commercial investing, commercial properties, Commercial Real Estate, commercial real estate deals, real estate, real estate investing, real estate investor