Upside Deals: Building a Money Pump

The quickest way I know to make significant profits with commercial real estate is to do deals with substantial upside potential.

But first let’s define “upside”. I’m not talking about a paper increase in value due to scheduled rental increases, or replacing “below-market” leases, as many for-sale brochures define the term.

My definition of upside is to unlock hidden potential in a property that creates triple digit percentage gains on investment, provides positive cash flow along the way, and avoids major risks of loss. The upside may come from expansion, redevelopment, or by changing the market position of the property with major improvements.

How do you do that?

It boils down to three critical factors: the local market conditions; good structural bones; and a willing seller. When all three are present the deal is there for the taking, but only if the investor can design and implement the proper structure. The focus of this discussion will be in creating a structure to create and capture upside.

Market Is King

First and foremost is the local market. Regardless of property type, the first rule of real estate investing is we do not make markets—we serve them. A poor market will stop any plan dead in its tracks, so the first priority for any strategy is make sure the area demographics of population, income and employment are in a positive trend. Basic demographic research includes statistics for a three- to five-year period to show the trends. One year’s data is useless. To say a market had a 2% population growth in the previous year means nothing. But if the current 2% increase is up from 5% loss over the last five years indicates the market is turning and worthy of further investigation. With that knowledge we can be confident in seeking out the worst property we can find in a good location, because that’s where we’ll make the most money.

Good Bones

What we’re looking for is the things that can’t be changed being sound. We look beyond the cosmetics to the structural elements, such as foundations and basic construction of the buildings, the systems, and the grounds. If the structural elements are failing, then the property may not be suitable for turnaround without expending more funds than can be recovered. Aesthetics can be fixed.

Unless you are an expert in building systems, construction and environmental issues it is advisable to hire experts to inspect the relevant elements of the property. The cost is negligible when compared to the cost of fixing a mistake, or worse, not being able to fix it. Location is something else that can’t be changed. Don’t fall for the old sales line of “priced below replacement cost”. My first question is always “If given the chance to replace it, would I?” Understand the local market and how it works. A great deal in a bad location is not a deal… it’s a problem looking for an owner.

Seller Motivation and Deal Structure

The final question is to assess the seller’s willingness to help us solve his problem. There are a number of ways to accomplish that, and it takes some digging to get into the seller’s mind and discover his true motivations. Most commonly the property has existing debt. The seller may offer to finance part of the purchase price as a second mortgage. But the property can rarely support a new loan, and that requires the buyer to fund improvements from cash out-of-pocket. That’s hardly an attractive proposition, as the cash flow is usually not sufficient to carry the additional debt of the seller’s note and provide a return on the investor’s capital.

Typically the alternative is for the seller to greatly reduce the price, even below the amount of current debt, or accept a subordinated note with no payments. With those options many sellers will opt to keep the property rather than take the risk for no money. The deal falls apart for lack of an alternative structure. The ideal structure would allow the investor to obtain new financing that includes the funds needed for improvements, the seller to realize some of the upside in return for staying in the deal, and designed so the property produces a positive cash flow. Can that be done? Yes it can, as the following example from my files demonstrates.

The Deal

The deal was a 54-Unit apartment complex, well-located in a great college-town market. The owner had let the property decline to the point that the performance had suffered tremendously. The expenses were high and the income unstable due to the poor condition of the property. The buildings needed new roofs, windows, kitchens, paving, heat pumps and new appliances. The existing NOI (net operating income) was about $145,000. The owner had existing debt of $950,000. The improvements were estimated to cost $350,000. The as-is appraised value (and the asking price) was $1,200,000, reflecting an as-is 12% cap rate. The projected value after the improvements was estimated to be $1,750,000, using the same NOI but a lower cap rate (8%) to reflect the completion of the capital improvements.

The Structure

We came up with the following deal structure: In lieu of down payment, the seller would get 20% equity-only (not profits) interest in a new LLC that would acquire the property. The LLC would obtain a bridge loan for $1,300,000 to pay off existing mortgage and fund the repairs.

The Plan

Our investment plan was to complete the improvements over a six-month time frame, and then raise the rents to market levels. In the first year we planned to complete the improvements and raise the rents for upcoming leasing season. No occupancy increases were projected, but the combination of higher rents and lower expenses were projected to significantly increase the NOI and cash flow. In the next two years it was expected that the occupancy would also rise to an average 97%, excluding collection and vacancy loss, further increasing NOI and cash flow. In the third year the LLC would refinance the property based on the increased income, and use the proceeds to pay off the seller’s LLC interest. At that point we would own 100% of the LLC interests and could either hold the property or sell at will.

The Result

The improvements were completed and the rents were raised $50-$75 per unit in the 1st year. Annual increases of $20 per unit were implemented in following two years. The occupancy increased from 90% to 98%, raising the NOI to almost $190,000, and the cash flow to $80,000. Now it was time to turn on the money pump. The property was refinanced with a $1,500,000 loan based on the higher value. We used $200,000 of the proceeds to pay off the seller’s interest and the LLC kept about $50,000. The loan was at a lower rate and longer amortization, so the cash flow actually increased to about $90,000. We held the property for two more years, and then sold it at a 7.6% cap rate on the next year’s projected net operating income of $186,200, yielding a price of $2,450,000.

Over the five year hold period the investment produced:

3 years cash flow @ avg. $80,000 = $240,000
2 years cash flow @ avg. $90,000 = $180,000
Refinance proceeds– $250,000
Equity at sale– $1,050,000
Total cash and equity $1,670,000
Less seller’s interest –$200,000
Total Gain–equity and cash $1,470,000

If you were paying close attention, you realize now that the deal was done with no money out-of-pocket from the buyer, but with none of the risks of over-leverage.

Position Realty
Office: 480-213-5251

Property Zoning Is The Second Most Important Component In Real Estate

After location, zoning is probably the most important characteristic of any type of real estate. It is the obvious starting point for evaluating a parcel’s potential for development because it spells out what you can do with the property. Zoning is a critical piece of the puzzle particularly if you want to be a land developer, an investor or work with a builder in some way. Save yourself much time, energy and frustration by checking out the zoning first, not last.

Local governments enact zoning ordinances and adopt the maps that show the physical boundaries of the zoning districts, and these are modified periodically. To determine the current zoning of a particular property, you would first look at the zoning map to see what district it falls in and then consult the current zoning ordinance. Both of these documents are available for review online or purchase at the municipal building. What will you find in the ordinance?

ZONING MAP EXAMPLE

It tells you what land uses are permitted in each district or classification. These classifications generally include residential, mixed residential, mobile home, commercial, shopping center industrial, office, and conservation. The ordinance also lays out other standards and requirements, such as the minimum lot size, minimum lot width, dimension of setbacks, height restrictions and building coverage. It contains definitions that help you understand the terminology used throughout the ordinance. There are general provisions that apply to every zoning district, and these deal with issues like non-conforming properties and uses, accessory structures and uses, flag lots, fencing, signage and minimum lot frontage requirements.

Provisions for a specific zoning district can often include both “by right” and “conditional” uses. For example, single-family detached dwellings, agricultural uses and governmental recreation areas may be permitted in a district. A privately-owned riding academy, stable for horses, public or private day schools, 18 hole golf courses, places of worship and day care facilities are permitted in that district only when authorized by the municipal Zoning Hearing Board as a special exception. This latter group of uses is not permitted automatically, and to get a special exception, you would have to demonstrate that your use falls within those defined in the ordinance and also complies with any requirements, such as minimum site area, building and paving coverage, and buffering, specific to that conditional use.

Key Points About Zoning

It would be helpful to remember some key points about zoning. Land use and regulation laws vary from state to state. Terminology and nomenclature vary from municipality to municipality, even within the same county in the same state. For instance, the “R-2” zoning classification in one municipality may mean that single-family detached housing is permitted on a minimum lot area of 35,000 sq. ft., with a lot width of at least 125 feet, and front, side and rear setbacks (yards measured from the parcel boundaries to define the area where a structure can be built) of 60, 20 and 80 feet, respectively. Go to another municipality, and you could find that the R-2 District permits single-family detached housing on 43,560 sq. ft. lots 150 ft. wide with front, side and rear setbacks of 60, 25 and 80 feet. You should not assume that the same name used for a classification in different municipalities means the same thing and when marketing land to potential buyers, be sure to include information on the permitted use and requirements for minimum lot size and width. Describing the zoning of the property only as “R-5”, “MR-1″ or “C-2″ is meaningless.

Finally, some words of caution. Zoning and other types of ordinances are available online. Do not, I repeat, do not rely exclusively on online ordinance information. Go to the primary source (the municipality that enacted the ordinance) and check it out to be sure you have the most current and accurate information. Always page through the entire ordinance because municipalities often enact amendments that can be printed in the back of the original ordinance (without cross-referencing the original provisions that have been amended). If the provision is somewhere in the ordinance, it applied. Just because you didn’t see it doesn’t mean that it doesn’t apply.

PositionRealty.com
Office: 480-213-5251

Making A Success Out of Commercial Fixer-Uppers

Are commercial fixer-uppers worth the time, expense and effort? My answer to that would be that the right fixer-upper with numbers that make sense can be the right strategy to use. In fact, these types of properties can be an easy way to see an instant value increase in the property but like with any deal, only if the costs to rehab the property make sense.

Commercial fixer-uppers employ one of my favorite value plays called “repositioning”. That means that either the tenant base changes, the appearance of the property changes or that both of these options are exercised on the properties.

In residential real estate investments, the idea of investing in a fixer-upper is to acquire the property at a significant discount due its condition. In commercial property, the same still holds true but in commercial properties it can account for greater cash-on-cash returns. Perhaps you’ve found a property that needs some cosmetic care. Maybe the exterior needs to be updated with a new look. You’ll be amazed at how a small investment can net a high return in value.

How To Make Money Investing in Apartments

Apartment buildings can be a great opportunity for repositioning. In strategies like these, the first thing I usually change is the exterior paying special attention to the parking lot, roofing and sidings. I do other simple things like updating the landscaping and putting new signage on the property which are quick ways to give a new appearance to an older building.

I might also consider repositioning the tenant base with this same apartment building. I’ll replace tenants who don’t pay or don’t fit the target tenant profile with ones that do. This may take months to accomplish, but the increase in value can put the worth of the property through the roof!

When repositioning a commercial property, make sure you keep on top of excessive rehab costs. Have a plan and get estimates upfront. The lack of a rehab plan can cost thousands of dollars to fix especially if the rehab doesn’t produce the results you desire. Remember to also use professionals to get the job done. Trying to be cheap by doing it yourself may mean that you don’t end up with the professional upgrading that your property needs. This will not only waste your time, it’ll cost you the tenants or your building.

A lot money in the deal to help cover the expenses of repositioning. Taking too long to get paid is one of the reasons a fixer-upper investment will fail. If you aren’t collecting the necessary rents to cover the mortgage because repositioning is taking longer than expected, you could have a disastrous situation on your hands. Set a plan that is realistic financially before you commit yourself to any fixer-upper deal.

Commercial fixer-uppers may also be candidates for using a value strategy called “forced appreciation’. This means that property appreciation occurred because rents were raised or expenses were lowered. Was the previous owner afraid to raise rents because he felt the property was in disrepair? Did the property have expenses on the higher side and what will it take to lower the costs? Simple fixes to problems like these can increase the net operating income and the overall property value.

Get rid of your fears about working with commercial fixer-upper properties. By using sound strategies such as repositioning or forced appreciation, you can ensure that your investment will be a success.

PositionRealty.com
Office: 480-213-5251

Need To Hire A Commercial Real Estate Attorney?

As a new investor or perhaps you are a experienced real estate investor working on a complex deal, you may consider it necessary to use an attorney during your commercial real estate transaction. There are a few things you need to consider before you engage the services of a commercial real estate attorney.

How Do Attorneys Help Commercial Real Estate Investors?

First and most important, they help identify, negotiate and manage the risk. This is why it is ideal to find not only a commercial real estate attorney but also one whom invests in commercial real estate.

The attorney will help you draft and negotiate the contract. You would not think about performing heart surgery without the proper education and experience, yet many students try to document their own commercial transactions without the proper experience and without using an attorney.

Usually it ends up costing them because they lose their earnest money deposit or they spend more on due diligence expenses because they did not write the contract correctly. Next, attorneys will look at the facts and the laws objectively. Since they are not emotionally involved, they are able to ask the right questions.

Last, utilizing a commercial real estate attorney takes the worry out of the transaction. You know that you have the proper documentation in place and that you are protected by the law.

When Do You Hire A Commercial Real Estate Attorney?

Complexity
First, look at the complexity of the transaction. If you are issuing a standard Letter of Intent (LOI) it is unnecessary to incur the costs to engage an attorney. However, when you are getting ready to go to a purchase contract you should definitely engage a commercial real estate attorney, because it is critical that your contract covers all the stipulations of your due diligence and closing requirements.

Risk
Next, look at how much risk is associated with the transaction. On an apartment lease, it is unnecessary to have an attorney draw up each lease for each new tenant that you get. In this case, you can use a standard lease that is drawn up one time by the attorney. When you are negotiating a ten year lease with a national tenant, it is important to dot your “I’s” and cross your “T’s”, so an attorney needs to be involved.

Legal Documents
If you are initiating a standardized procedure which will be utilized over multiple projects, it makes sense to invest the money one time. This way you know legally you have it properly documented. I have done this to standardize my leases, my Letters of Intent and my construction contracts.

Negotiations
If you feel that your negotiations are becoming emotional, a commercial real estate attorney needs to be involved. An attorney can make it more mutual between the parties involved because they are looking at each point with no emotions. This is not only helpful when trying to resolve a dispute but it is also helpful when negotiating a lease or purchase contract.

Deadlines
Last, when timing is critical and dead lines need to be met, an attorney can make sure a seller is staying on course. We have experienced this when a seller drags their feet and we need something from them in order to present to a zoning committee. The attorney can legally force them to get it done. They can also make sure that you do not lose a deal or your earnest money. If you miss a closing date but are working toward the closing, the attorney can buy you some time so that you get the deal closed.

How Do You Find the Right Attorney?

In order to find a good commercial real estate attorney, look into their reputation, by checking not only with their clients but also with their peers. Find out what their business relationships have been like. Ask other investors for a referral or ask your banker, accountant and network groups.

Also, verify what their cost is so you are paying for the level of service that you need. Donald Trump’s attorney may be the best in the country but is doesn’t make sense to pay his fee for a $250,000 transaction.

When you are in a situation where you are considering using a commercial real estate attorney, always weigh the risks versus the rewards and make sure that you always use a commercial real estate attorney.

PositionRealty.com
Office: 480-213-5251

Know the Players in Commercial Real Estate

Every line of business has its pundits who like to refer to the business as being a sort of game. I don’t dismiss this notion, and actually am a believer that game theory has its place in real estate. Every game has an objective, a set of rules, a concept for what it takes to win, and of course players or participants. Who are the players in commercial real estate? This article explores that very issue.

First, let’s look at this from the investor side of things. Every market has investors, large and small, who are interested specifically in commercial caliber real estate. Some of these are what I call Tier One investors, who look for small to medium-sized commercial buildings. Tier Two investors look for even larger buildings (exclusively so) and Tier Three investors are perhaps the biggest players of all, responsible for developing new properties.

While this player breakdown is pretty loose and definitely unofficial, I think you get the general idea. Some investors are finders of properties and some are creators or developers of properties. Any and all of them may build funding for their projects through collaboration with others but all are people you would benefit from knowing in your area as you start building your own business. These players may have deals to offer and some may be interested in collaboration so these contacts are essential.

Next, we have professional players, who would include personnel like commercial realtors, bankers, appraisers, property managers, contractors, bird dogs and the like. As you can imagine, these players are also very important but they are more from a supporting role to help get things done in the world of commercial real estate.

It is no less important to know the professional players because, without them, you will find the business of commercial real estate much more difficult to navigate. A great way to build a business is to start assembling a team of professional players, who will both help introduce you to investor players, but will also give you more credibility when you make contact with other investors.

Last, we have the behind the scenes players, who would include city or county officials, code enforcement reps, planning and zoning specialists, architects, and engineers. These personnel are no less important to playing the commercial real estate game and are arguably the most integral, given that seasoned investor players regularly and effectively use behind the scenes players as a part of their successful formula.

When you embrace the game aspect of commercial real estate and recognize that there are indeed players you must recognize, your own ability to play and play to win will go up dramatically. When this happens in this business, profits are soon to follow.

PositionRealty.com
Office: 480-213-5251

Developers Scramble to Catch Up With Apartment Boom

Developers are ramping up apartment construction across the country to cash in on rising rents. Multifamily construction is at nearly two-thirds of its pre-recession peak; single-family home construction is about a third of its way back, David Crowe, chief economist at the National Association of Home Builders, told The New York Times.

The multifamily construction boom is strongest in the South and West, where employment is picking up, and it’s being driven by young people who are delaying home ownership.

“People in their early 30s, the age when many might look to buy a first home, are renting for longer periods of time, partly because mortgages are difficult to come by and partly because they have been unnerved by the turmoil in the housing market,” The New York Times reports.

Meanwhile, developers are rushing to meet the demand. Markets like Houston, Denver, Phoenix, Oakland, Seattle, Miami, and Charlotte, N.C., are seeing increases in rental demand, according to housing surveys.

“The demand for building is all over the country, really,” says Ric Campo, chairman and chief executive of Camden City Centre, a development of thousands of apartments in the Houston area. “We’re seeing higher rents, faster lease-ups, lower construction costs — everything you want to see. Part of it is there’s just a pent-up demand for new product because we didn’t build anything during the downturn.”

Residential rents increased 4.2 percent in 2011 on a national basis, and 3.6 percent so far this year, according to Axiometrics, an apartment market research firm.

Some in the sector now fear overbuilding, particularly with the surges in rent increases now starting to taper off.

“The real test is going to be what happens between now and April or May as we see all these new units introduced to the market,” says Jay Denton, Axiometrics vice president for research.

PositionRealty.com
Office: 480-213-5251

Small Commercial Building Sales Back to 2008 Levels

Trepp LLC is reporting that sales of small buildings nationwide have increased in 2012 to the highest level since 2008, with more and more buyers taking advantage of prices that have yet to rebound from the property boom going bust.

Broker Connie de la Garza has been trying to sell an empty medical-office building in Harlingen, Texas, for six months. He’s finally getting offers after slashing the asking price by 26 percent to $1.4 million.

“That’s when the real activity happened,” said de la Garza, the owner of Bahnman Realty Inc., who is marketing the property along with Brandon Beeson of Edge Realty Capital Markets. After two bids that were “absolutely ridiculous,” the third “is something that we can work with,” he said.

Increased access to financing has also played a significant role in the uptick. Improved demand is expected to help broaden a commercial real estate rebound that has so far been confined to trophy office buildings, apartment communities, and shopping malls.

Loans for properties valued at less than $1 million account for nearly 33 percent of commercial mortgages held by banks, notes Trepp researchers. Meanwhile, the sales volume for properties of less than $5 million soared 41 percent this past May from a year ago to $4 billion.

Of the 122 metro areas that Boxwood Means monitors, 88 registered year-over-year increases. Total volume for this year’s January-through-March period was $20.3 billion—the highest for that five-month period since ’08.

Finally, a Green Street Advisors Inc. index of commercial real estate values measuring REIT properties has climbed 53 percent from its 2009 low and is just 6 percent from its August 2007 peak. Ryan Severino, senior economist at Reis Inc., concludes, “There’s definitely not a lot of institutional money chasing those kinds of deals.”

PositionRealty.com
Office: 480-213-5251

Commercial Due Diligence: How to Find the Stuff You Need

Due diligence is extremely important, regardless of the type of property you’re thinking of buying. In development property and land deals, buyers start the fact-gathering process with their first encounter with the property and it continues until they either bail out of the deal or go to settlement.

Here’s a list of sources of information (people, places & things) that are good starting points if you’re trying to research a property.

Sales & Ownership Data

Tax assessor information is available in several forms. For every piece of data, there is a primary source. The primary source is likeliest to be the most accurate and current source of information. For real estate documents that are recorded, such as deeds, liens, restrictive covenants, easements and subdivision plans, the primary source is the actual record of filings maintained by the applicable governmental department as well as the documents themselves and the recording information shown on them. These are usually kept at the courthouse for the county in which the property is located (Recorder of Deeds or Tax Assessment Dept.). People usually use title insurance companies who send searchers to the various courthouses to look up records. The deed contains the legal description of the property, which sets forth the property’s actual dimensions.

You can also search in free or fee-based databases that allow you to get information on properties nationwide or in a particular geographic area, such as: http://www.searchsystems.net; http://www.realquest.com; http://www.brbpub.com/pubrecsites.asp. These are great tools as long as you remember a couple of things. They should never be used as a substitute for hands-on research and inspection if you need results that are current and absolutely accurate. No database, even a governmental one, is a primary source of information. The governmental database, however, may be the next best thing to the primary source depending on the manner in which it was created and the frequency with which it is updated. When title companies insure property title, they do not rely exclusively on databases. They send people to where the records are maintained to physically search them. Real estate appraisers do not just use databases. They conduct additional due diligence and physically inspect the properties involved.

For several reasons, the farther you move away from the primary source of information, the greater the likelihood that the information may not be current and accurate. There is the time factor. The information has to pass from the primary source down the line through other people or organizations. In addition, there is the “garbage in, garbage out” principle. The integrity of any database, governmental or not, hangs on the thoroughness and competence of the people responsible for compiling and maintaining it. Databases can save you a tremendous amount of time and effort. You can use them most effectively as screening tools and to gather information subject to confirmation and further research if the situation or property warrants it. In addition, they are invaluable in identifying contacts if you need additional details or clarification.

If you want to find out who owns the property but don’t know the address, one way to be able to identify the property is to go to the municipal building and look at the tax maps or tax plats of properties in the municipality. By process of elimination, you should be able to identify the property (thus giving you the owner name, address, parcel identifying number). It’s a good idea to take a copy of the tax map with you when you return to the property since this will help you to pinpoint its location by counting parcels on the map from intersecting streets or other landmarks, particularly if the property is vacant land. Again, be aware that some of the information in the database or on the tax maps may not be accurate, particularly the size & shape of parcel, zoning classification, and whether the property’s serviced by public utilities.

New Construction Communities

If you want to find out who is or will be building in an area, take one municipality at a time and get the list of approved subdivisions and land developments from the municipality (manager’s office, code enforcement or land development offices). Then you can visit the new construction sites, talk with the site agents and get brochures. If the jobs haven’t started yet, you can go to the builders’ websites for preview information.

Municipal Records

You can identify properties that have applied for rezoning or subdivision & land development approval by requesting a list from the municipality of the properties. After you decide which properties you want to investigate further, make an appointment to review the development files and plans at the municipal office. This is public information, and anyone is entitled to review materials relating to actions taken by a municipality in public meetings and hearings. This can be an excellent source of information on owners who may be thinking of selling their properties.

Utility Maps

Checking the street for manhole covers and hydrants won’t necessarily give you correct information about whether a property can be serviced by public water and sewer. Instead, consult the mapping available through the municipal or regional sewer & water authorities, county or regional planning commission and private water companies.

Zoning

Each municipality adopts a zoning ordinance and zoning map for the properties within its borders. This material is available for review or purchase at the municipal office or through private vendors. Always make sure you’re looking at the most current ordinance and map since these are amended periodically. In addition, read the whole ordinance and not just the section on the particular zoning classification because the ordinance contains provisions that apply across the board on issues like definitions of terms used, accessory uses & structures, signage, and minimum frontage requirements.

The zoning officer (a/k/a code enforcement officer) at the municipality is the one to whom you should direct your questions about the zoning ordinance or map or if you want to find out anything about a property that may have happened in the past, like granting of variances, special exceptions or conditional uses.

Proposed Highways & Facilities

Depending on the nature (federal, state, local), you can access information through the municipality, county/regional planning commission, municipal comprehensive or “master plan” and federal or state agencies.

Profile Data of Area or Municipality

Municipalities and county or regional land planning agencies prepare comprehensive or master plans as a primary tool for their land planning. These plans contain a wealth of information pulled from various sources including US Census Bureau, Dept. of Labor, US Dept. of Agriculture soil surveys, FEMA floodplain mapping. In addition, you’ll find data about natural resources, statistical data on housing stock and non-residential developments, existing and proposed roads, transportation facilities, utilities, plants, commercial operations, hospitals and schools. Be sure to check out the proposed land use map and accompanying text. Here you might find clues for future growth areas and even potential for successfully rezoning particular properties. The master plans are available at either the municipal office or the county/regional planning agency.

Floodplain Maps

To determine if the property is in an area subject to flooding, consult floodplain maps. These are available through either the municipality, county/regional land planning agencies, or FEMA (http://www.fema.gov).

Apartment Investing Basics: 6 Warning Signs of a Bad Deal

Phoenix multifamily properties are preferred by many investors as they bring in passive income (and its my favorite type of deals to do!). When buying Phoenix income properties, it is normally a longer-term investment, but you need to make sure your money is used in the right place. Below are a few factors that may help in deciding which property to invest in.

Buy an affordable property
One should always choose a income property they will be able to afford; it’s not just about being able to buy a piece of land. Investors calculate that the rent will be able to payoff the debt of the loan and provide extra money at the end of the month for their own pockets. Until a unit is rented out, the owner (that’s you!) has to pay the mortgage, so he or she should have enough monthly income to settle the payment. Apart from the mortgage, other expenses also need to be fished out from the owner’s pocket. One should have enough funds raised so an investment does not end up in a loss.

Neighborhood and surroundings
A good neighborhood ensures how soon a property goes on rent. As an investor, one should purchase a property in a safe and reputable neighborhood. Neighborhoods are generally categorized into A, A-,B+, B, B-, etc. properties Properties near colleges go on rent easily, as every season students enroll and they look for a cheap residence. The surroundings of the property should have all the basic amenities like schools, parks, shopping malls, supermarkets and so on. A property that is far away from these basic requirements might not be able to hold tenants for long.

Get the information
Get know-how of the area, and before signing the deal, visit the area for a few days and at different times. This way one will get to know about the area and the crowd that lives there. Getting information from those who already live there will be a deciding factor in the purchase.

6 Early Warning Signs of a Bad Deal

Your job as a real estate “rainmaker” is to find the deal and make it happen. Leave the building management and operations to others. The big money is made in the deal and that’s where your time is best spent.

Obviously you want to focus only on stellar deals. Forget the marginal ones. It takes just as much time to work on a deal that brings in peanuts as it does to lock down a deal that makes you wildly rich. There are 6 red flags that tell you quickly if a deal will be a time-waster. If you spot just one of these 6 warning signs, move on to the next potential property.

1. The Numbers Don’t Add Up
The bottom line is you want to make a lot of money. If the numbers don’t add up and the seller won’t drop the price, or you can’t get better terms, move on.

2. Missing Numbers.
If the seller can’t provide you with the year-to-date profit and loss statements, plus the actual numbers from the previous two years, move on to another deal.

3. Made-up Numbers.
Pro forma numbers are pure guesswork. They may be educated guesswork, but they are still a projection. Lenders won’t give these made-up numbers any weight and neither should you.

4. Troubled Property.
A property may look good on paper: The numbers are real and they add up. But a site visit paints a different picture. Major repairs are needed because the seller has been deferring the maintenance hoping to pass the headache on to the buyer. Don’t let it be you.

5. Wrong Area.
Don’t spend your money trying to reverse a trend. If the neighborhood is in decline, the property carries that stigma. Tenants will be moving on, and so should you.

6. Months on the Market.
Good properties go fast. Bad properties linger in the listings for month after month. With detective work you can figure out why it’s a dud. And that’s a viable learning experience. But your time will be better spent going after good deals.

You create a beautiful garden by getting rid of the weeds. It’s the same with building a real estate portfolio: you must quickly weed out the lousy candidates and focus only on the prime properties. There are a lot of apartment buildings for sale in Phoenix. Phoenix income properties will yield you the best returns for your investment portfolio. Give us a call TODAY!!

Apartments Best Commercial Investment For New Investors

I was asked the other day by a new investor what my favorite type of commercial property is to invest in. I like apartment buildings best. They are easy to find, easy to analyze, everyone needs a place to live, banks love to lend on them, and they’re great cash flow generators – especially now that prices and interest rates are down! In fact right now FNMA is offering 5.5% loans on apartment buildings!

For a new investor they are easy to analyze, manage, and easy to relate to. For an experienced investor they are straightforward to manage and you can set up business systems to automate and delegate the mundane day-to-day tasks of owning apartment buildings. Once one is started it is relatively simple to buy more and more apartment units and become a rich apartment building mogul.

Now is a great time to start. There are lots of great deals on apartment buildings because Buyers are sitting on the sidelines forcing sellers to be realistic about prices.

Properties are being bought on cash flow today based on current rents and occupancy – not on artificially high prices based upon hope of future appreciation or condo conversion. Buying at today’s low prices gives you positive cash flow from day one. That makes is a smart investment.

My advice to my new investor was to start off with apartment buildings. I recommended that he start by investing in small to medium-sized multi-unit properties (5 to 12 units) then work his way up to larger properties as he gained experience and a strong management team.

Go forth and Prosper.

Results No Excuses

Category Archives: Commercial

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Apartments Best Commercial Investment For New Investors

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