All Forum Posts by: Dory Peters

The cap rate alone doesn't mean much. Yet, a discussion that addresses the cap rate along with the other terms (ie the loan interest rate, the amount of cash invested, the yield, one's investing goals [for that property], etc) is much more meaningful.

I've seen some class A commercial properties in NYC being sold at a 3% and 4% caps that might make sense for some buyers. The only way I'd even consider getting something with a cap that low is if I got it with great terms.

In some ways, I fit some of the typical IT worker stereotypes: I'm brutally honest, and I admit I'm not the best communicator. So rocket science is easier to me than networking, but I learned that I can hold my own--after several years of practice.

The best way to network for me is by establishing relationships that add value for both parties involved. I do it via posts (like this one), blogs, e-mail, phone conversations, REI club meetings, IT club meetings (an excellent source for many passive investors), church, family reunions, vacations, etc. In fact, a couple mentors taught me, "You're always networking." Meaning that we need to turn it on, and keep it on 24/7.

Before I began to network, I had to figure out my message (ie What did I want to say? How did I want to say it? Why did I want to say it? To whom did I want to say it? etc).

Be yourself, and be authentic. I'm a numbers person (a Software Engineer) by nature, and I don't hide it. I don't get those touchy-feely presentations, but I'll periodically collaborate with someone who does (and who's not into the numbers).

I also throw myself into situations sometimes where I'm a fish that's out of the water. Doing this keeps me sharp, and it helps me to learn new ways to solve problems. IMHO, REI is at its essence all about solving problems: the more kinds of problems that one knows how to solve, the more deals that s/he can do.

It's really that simple, and it's really that hard.

E-mail, posts, and phone calls (in that order) are the ways of networking that have benefitted my business the most. I get at least 90% of my leads via e-mail and posts.

Forming friendships works for me, but I also know others (including some friends) who refuse to do business with other friends, and that's cool too. So I guess that puts me in the 'both' category.

It also depends on the type of buyers to whom you intend to market your deals, and it depends on the terms that you negotiate on the deal.

For example, if you negotiated a deal where your end-buyer could buy the property with seller financing, and you opted to wholesale it to him/her--rather than doing something like a double wrap--then could put the property under contract for ARV - your assignment fee, and flip it wholesale to your end-buyer for the ARV. And of course, you'd get the spread.

Although the deal is no good with that exit strategy (a simple rental), you could tweak that deal to transform it into a good one.

For example, let's say that you buy this with a wrap (with the aforementioned terms), and you flip it immediately for $156K, with 10% down, with a land contract with a payment of $1650/month, amortized for 10 years (assuming your note doesn't have a balloon). You'd walk away with $1K cash from the second closing, pass on any expenses (including tax and insurance) to your end-buyer, get a PTCF of $350/month, and get an extra $9K over time.

Originally posted by Scott Hubbard:

2. Required non-refundable earnest money deposits.

That's interesting. I almost never do non-refundable EMDs.

Originally posted by Scott Hubbard:

4. Heavy emphasis also doing your due diligence upfront as there will not likely be an inspection period like in residential.

Although some sellers/lenders will demand the due diligence to be performed upfront, this practice isn't universal. Some buyers always demand to be able perform all of their due diligence while under contract, and will walk otherwise. (I'm in this camp.)

Originally posted by Scott Hubbard:

In my opinion, you need more capital, a better team, and a lot of patience in commercial RE. The person representing the bank is going to be much more skilled, less patient, and very adept as negotiation. Therefore, you will need to step up your game.

Although I agree that many commercial bankers are usually more skilled and very adept in negotiations, I've found them to be far more flexible on terms and more patient concerning the timing.

Originally posted by Frank Adams:

I looked on this as my own "bond fund" or as my wife says a "FrankieMAE" fund.

I loved that line. :cool:

BTW, Charles, I must have had a brain fart yesterday, because I should have also referred you to some of Nick Johnson's posts on seller financing too.

Actually, it's not that hard to find "a property manager that would be as concerned about efficient management," but you might need to interview 30 of them to find that shining star. If you decide to get into commercial at some point, then scale will be a key issue, and it's simply impossible for 1 person to effectively manage several hundred units by him-/herself.

Contrary to popular opinion, seller financing also works just fine even in scenarios where the seller has little or no equity in the target property. Obviously, the terms of a deal with little or no equity should be structured differently than one with the "popular" minimum 30% equity that some recommend. Jason Hanson addresses this issue quite effectively in a post "The 4 Strategies To Make Money From Subject To's". He's the first person I stumbled upon who mentioned anything about simply taking over payments and stretching out the time (for the refi).

Additionally, seller financing isn't just a good strategy for retirement, it's a great strategy IMHO for buying/selling--period.

Furthermore, unless one puts his/her equity to work--via a combination of cross-collateral, a bank loan, and/or seller financing--that equity is simply collecting dust. In other words, that equity doesn't produce any other kind of return.

Originally posted by Frank Adams:

One other thing about the long term. Neighborhoods change and with it their desirability and value. Sometimes they go up, sometimes they go down. Cashing out prevents future appreciation but also depreciation.

I agree.

Besides monitoring the owner/rental ratio, some HOAs have bylaws that disallows an owner from renting one's unit.

BTW, just to build on Rich's point, a friend received a special assessment for an extra $15+K (with the other owners in his subdivision who were current on their dues) a few months ago to cover the back dues from several of the other underwater owners.

I initially didn't have a choice: my first mentors were my parents and grandparents. They taught me certain things about real-estate investing whether or not I wanted to learn the concepts--and I didn't even realize it until many years later. I ran away from real-estate for years, and came back to it on my own terms.

I also asked my grandfather why he started investing in real-estate. He told me, when he was a new hire, that he asked someone who was older and wiser what to do with his money, and then he acted on that guy's advice.

Check out some of Rich's posts here; I know I've certainly learned a few things--and stolen a few tips/clauses--from him.

For some other perspectives, you really should check out some of Dawn Rickenbaugh's and Bill Exeter's content on seller financing, notes, and exchanges. Marc Faukner and Donna Bauer has some great content on seller financing and notes; and Wendy Patton has some great content on lease-options and seller financing.

Although selling with seller financing might be a "last ditch resort when disposing of property" for some, it's not a last choice for others (myself included). Seller financing is much more versatile when combined with note buying/selling, and I learned from Dawn and Bill that one can combine them with exchanges to much more.

Keep in mind that one can structure the seller financing so that the title transfers at closing, or sometime later (as in the case for a land contract or a title-holding trust). One can also structure the seller financing so that the seller retains the depreciation and interest deductions (also for land contracts [most states support this--but some don't]). One can also structure the seller financing with an interest rate with adjustable or stepped rate (ie which is kind of like--but not exactly--built-in appreciation). And the list goes on.

Although the income (ie the payment spread) is taxable, I wouldn't necessarily say that one created another taxable income stream. After all, one would still be taxed on the income from the rent, so the income stream is essentially transformed (from rent to mortgage payments).

You might want to consider using a service like erentpayment.com. Otherwise, you'd have lots of hassles handling issues like PCI compliance if you intend to allow your your tenants to pay with credit cards via your website.