Learn 3 tips for attracting real estate investors, how to talk to them about making money in real estate, what they want to know about your real estate investments, and who’ll you’ll need to help you if you’re just starting in real estate investing.

Want to learn how to customize this kind of information for yourself? Click here to access a free commercial real estate investing toolkit ($797 value) that will show you how for free. Start here.

 

Check out the latest webinar from CreInvestEd where Jeanne Baretta, CCIM of the New England Real Estate Academy interviews Jeremy Cyrier, CCIM on how investors use and understand cap rates when investing in commercial real estate.

During this 45 minute webinar, we show you:

  • Keys to mastering cap rate terminology in commercial real estate investing
  • How to correctly calculate net operating income
  • How to define and use the cap rate formula in 3 different variations
  • How investors leverage the exit cap rate to make big profits when selling their deals
  • How to calculate cash on cash return and its relationship to the target cap rate
  • Where cap rates are heading in the next 12 months

This webinar is free for you to watch as many times as you like.  Please feel free to share it with anyone you think could benefit from understanding and applying the cap rate calculation to their commercial real estate investments.

Want to learn how to customize this kind of information for yourself? Click here to access a free commercial real estate investing toolkit ($797 value) that will show you how for free. Start here.

Looking for 4 easy steps for analyzing commercial real estate?

Most of us will begin with running the numbers first. We want to grab that income expense statement and analyze the deal as fast as we can to find out whether it fits or not. When you do that, you’re using the cap rate, cash-on-cash or gross multiplier to qualify the deal. Yes, this is a very important step, but there’s a more important item to consider first when analyzing commercial real estate.

When analyzing commercial real estate, before you jump into applying these 4 easy steps, you need to first analyze your return requirements.

We all invest in commercial real estate because of the benefits that we want to receive, we want to replace earned income, grow net worth, and achieve financial independence. If you haven’t analyzed your own situation first, analyzing a commercial deal won’t do much for you because you need to know if the deal fits your requirements.

Think about it, you want to find out if the deal is going to grow your net worth, but if you don’t know what you want your net worth to be, how do you know if the deal is actually going to work for you or not. So the first thing you need to do is to identify what you want your net worth to be.

Once you do that, you can then see if the deal is going to move you there.

Does the deal throw enough cash flow to replace your income? If you’re still working for a living and you want your commercial real estate to replace that earned income, then you need to know exactly how much cash flow you’re going to need coming in on a monthly basis from that investment in order to get you out of your job.

Does the deal get you closer to financial independence? Does it allow you to leave your job, and to have the flexibility and freedom to grow your portfolio even further? If you don’t know what these numbers are first, analyzing the commercial property is not going to do you any good.

Before you go through these four steps, please, pause the video and take a moment to write down what you think those answers might be. Once you’ve answered these questions, you can analyze a commercial property and know whether it meets your requirements.

Here are the four critical steps you should always follow to make sure your bases are covered:

Step 1: Begin by understanding the market location and demand drivers for the property. You probably thought I was going to tell you to look at the numbers first, but there’s a process you need to go through.

First, understand the market and the location. If you don’t understand who wants to use the space that you’re buying … and remember, you’re in the space business, you’re renting space to people. If you don’t understand who wants it and why they want it, then you’re not going to understand how powerful the rent can be and how powerful the return can be from that investment. Take a step back and ask yourself, “How do I understand the market?” first. This will help you in your financial analysis.

It also means that you’re taking a moment to take a look at the property itself. Is it well located, are there any environmental conditions that you need to consider, how’s the property condition, what shape is it in, does it have favorable zoning? These are the types of thing you want to look for.

Step 2:  You evaluate the quality of the income stream. Does the property provide a durable cash flow that can service annual expenses, debt service, and meet your cash-on-cash return requirements?

This second step is critical. You want to make sure that you have a durable income stream. If you’re buying a property that’s 100 percent vacant, make sure you fully understand step one, the market location and the demand drivers because you are going to be making a big play on betting if that demand is going to show up and drive that investment forward.

Step 3:  Analyze the expenses. Are the expenses realistic and in line with the market? Is there an opportunity for you to streamline or reduce expenses to increase your return and property evaluation? Now the classic example of this is to look at the expense structure on a property, and you’re going to see that sometimes an owner is paying too much money for trash removal. You might know that you can get a better deal on it. You could say move that trash removal cost down by two, three, 10 thousand dollars a year. You’re going to create instant equity, an additional value in that property by doing that.

Step 4: Qualify the owner. Why is the owner selling in the first place? If it’s such a great deal, why don’t they just keep it? If you cannot identify more than one pain point, for example, it could be, “I need to sell to buy”, “I’ve been laid off”, “I’m getting a divorce”, then you need to think about the deal because you may not necessarily get the price that really makes sense.

By the way, where should we send your FREE email mini course?  It’s 100% commercial real estate investing focused and you can get it here.

So, you’re looking at doing owner finance real estate deal–really enticing except you need to be careful.

I’m going to give you a couple of things to watch out for when you’re looking at owner finance deals. Chances are that you’re looking at transaction and the seller is offer to finance it for you. The thing I want you to be careful of is that a lot of owners will actually offer you to deal at a higher price than maybe a bank with finance to deal at, and it’ll offer you terms on the financing in order to move the deal over to you.

First, the most predatory owners will work at deal where they sensually price the deal take your down payment, and then put you in to a financing structure that essentially is going to burn you out. What can happen is the cash flows that the investment generates may not be enough to adequately service the debt that you owe the owner, the real estate taxes, the operating expenses in a vacancy as well as when you have to cloud a pocket to invest in the property in order to reposition or re-tenant it.

Some owners are going to take advantage of you. What they’ll do is they’ll try to get you into situation where they can take your down payment, see you default and then take the property back. That’s the most predatory a form of owner financing and wants your watch out for that.

Now, the second thing on owner financing is it can be attractive if you’re having problems of getting credit or borrowing money from a bank. You see an owner offering to finance the deal for you that can be attractive, you do want any careful there because sometimes if the banks not willing to lend on the deal it may be a bad deal. You want to take a look at your underwriting and if you have other investors or friends that are active in the commercial real estate base that you can talk to, you might want to go to them and share your numbers to see sort of sanity check your numbers to see whether it’s actually good idea or not.

The third thing is, with owner financing which you can running to is a lot of owners will like to build in a balloon payment, they like to do a shorter term on the loan it could be one years, two years, three years, five years. What they want to do is get their money back out of the deal within the short period of time. Now, if you don’t negotiate enough time for yourself on this terms, what it can end up happening is you get another deal, you invest your money, put your time and energy in. You get the tenant’s working the cash flow plays which may not be in the position yet to get the appraised value that you need in order to refinance that property and cash the owner out. You will either be forced with having to renegotiate the debt with the owner, so changing that financing structure or you may have to go and sell the property and get rid of it early.

You want to make sure you have a very clear refinancing structure or sale plan when you are working with an owner who is offering you financing. Ultimately, make sure you’re talking to someone that is really sanity check your deal, you just don’t want to get in to something where you’re handing over money to someone in getting in to a money loosing opportunity. It’s made bad deal for you, might be a good deal for the owner could be a bad deal for them. Ultimately, could be a bad experience for you they can knock you out a commercialize investing all together.

By the way, where should we send your free 10 part email mini course?  It’s 100% commercial real estate investing focused and you can get it here.

If you have a real estate investing question that you’d like answered, please feel out the form below.

Your question will be answered by video and I’ll notify you when it’s ready.

By the way, where should we send your free 10 part email mini course?  It’s 100% commercial real estate investing focused and you can get it here.

If you have a real estate investing question that you’d like answered, please feel out the form to the right.

Your question will be answered by video and I’ll notify you when it’s ready.

By the way, where should we send your free 10 part email mini course?  It’s 100% commercial real estate investing focused and you can get it here.

Believe it or not, IRA investing in Real Estate is one of today’s hottest topics for generating wealth–tax deferred or in some cases tax free.

Here’s what you must know: you can invest IRA funds as debt or equity in real estate and build wealth in real estate inside your IRA just as you would with stocks, bonds, or mutual funds. What’s wonderful about this opportunity is that you don’t have to worry about what the hucksters on Wall Street are doing with your hard earned retirement dollars.

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Fans used to ask Pele, the great Brazilian soccer player, how he achieved such mastery of soccer. He used to answer,”Everything is practice.” Pele understood that the path to greatness wasn’t spending hours perfecting the most complicated plays of the game, rather endlessly trying to master the fundamentals. Mastery of the fundamentals, his most difficult endeavor, catapulted him to soccer stardom.

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In my prior life as a history student, my doctoral advisor explained his perspective of human behavior and how historians better understand why people do the things they do. He believed that as people encountered adversity, and as the outcomes of their efforts didn’t equate to their intentions, they would intensify their efforts in the hopes of overcoming undesirable results in return for what they actually wanted to happen.

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An investor asked us to give him a rental rate that would quickly lease his vacant space. The problem with this question is that it’s only half the problem. The other half of the question should be:

“At what rate would you recommend I quote in the market to lease my space quickly while maintaining my debt service coverage ratio and building a long term positive cash flow?”

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