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Peter Harris. Commercial Real Estate Investing For Dummies
Commercial Real Estate Investing For Dummies® To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Commercial Real Estate Investing For Dummies Cheat Sheet” in the Search box. Table of Contents
List of Tables
List of Illustrations
Guide
Pages
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Getting to Know Commercial Real Estate Investing
Just Imagine … Commercial Real Estate and You!
Defining Commercial Real Estate
Getting Started
Making money with commercial real estate investing
Categorizing investors
Cash-flow investor
Long-term “hold” investor
Crunching the numbers
Exploring investing opportunities
Financing a property
Understanding the Risks of Commercial Real Estate
Avoiding lawsuits, the most feared risk
Risk-proofing your investment plan
GETTING EXTRA HELP
A Crash Course in Commercial Real Estate Investing
Comparing Commercial Real Estate and Residential Real Estate
Deciding to Invest in Commercial Real Estate
HOW A COLLEGE DROPOUT TURNED $4,000 INTO A $120,000 PROFIT IN 60 DAYS
Exploring the Available Types of Investments
Apartment buildings (also known as residential properties)
Office buildings
Retail centers
Warehouses or industrial properties
Self-Storage Facilities
Hotels and resorts
Getting Started
Easily meeting people and making new friends
Doing simple math
Accounting and collecting
Recognizing Myths and Questions about Investing in Commercial Real Estate
Timing the Commercial Real Estate Market
Knowing whether to buy, hold, or bottom-fish
Following Trends
Evaluating Commercial Real Estate
Talking the Talk: Terms You Need to Know
THE TECHNICAL MEANING BEHIND THE NUMBERS
The Commercial Property Evaluator
Why Seller’s Numbers Can’t Be Trusted
How the Commercial Property Evaluator Works
Diving Deeper into Property Valuation
Not-so-obvious tips on analyzing
Breakeven analysis
Establish and follow guiding principles
Running the Numbers on Some Properties
Analyzing an apartment deal
Analyzing a retail shopping center
Valuing Properties like a Professional
Approach #1: Comparable sales
Approach #2: Income
Approach #3: Cost to replace the property
Understanding What Creates Value
Use: How the property is used gives value
Leases: As the lease goes, so goes the value
Location: The unchangeable factor
SUPPLY AND DEMAND: TIMING THE MARKET JUST RIGHT
Differentiating a Good Deal from a Bad Deal
Cash-flow investors
Long-term investors
Short-term investors
Getting Started Making Deals
Getting Started by Wholesaling
Navigating Too Many Deals
Wholesaling Apartment Buildings
Getting started without very much money
A Wholesaling Example
Making sure you have equity
Understanding why buyers will pay your wholesaling fee
Getting Started: The Five Steps
Step one — generating leads
Step two — analyzing properties
Step three — getting it under contract
Getting it under contract — reason # 1
Getting it under contract — reason # 2
Step four — finding a buyer
Step five — close and get paid
Buying From Wholesalers
Other Tips to Closing a Wholesale Deal
Make sure you help the seller
Put your reputation ahead of making money
FINDING BUYERS
Identifying what a good deal looks like
Snagging a Good Deal from Lazy Landlords
Choosing the right neighborhoods
Acquiring the Tools of the Trade
On Your Mark, Get Set, Go Find Deals
Discovering the Secret to Finding Great Deals
Defining your property search
Developing relationships
Getting Leads on Commercial Property Investments
Branching out
Fishing for Leads on Branch One Properties
Finding Branch Two Properties
Dealing with government agencies
Negotiating with realtors and brokers
Joining property owner associations
Networking with real estate investment clubs
GETTING LEADS THROUGH FRIENDS
Looking Locally and Nationwide
Surveying the pros and cons of local investing
Investing outside of your community
Determining your location with demographics
Locking Down Deals: Don’t Leave Home without These Strategies
Allowing the Great Deals to Find You
Attracting owners with reports
Making unsolicited offers
Discovering properties that have been relisted
Strategies for Making Offers and Negotiating
Increasing Your Chances of Getting Your Offer Accepted
Starting with the end in mind
Sizing up the sellers and what they really want
Sealing Deals: The Instant Offer System
Step 1: Build rapport with the broker or seller
Step 2: Establish an up-front agreement
Step 3: Build the broker’s or seller’s motivation level for selling
Step 4: Determine the financial details of the deal (The Money Step)
Money Step technique 1: Realistic expectations
Money Step technique 2: The range
Money Step technique 3: The fictitious buyer
Step 5: Find the critical pieces to a winning deal (The What-If Step)
Meeting the Seller to Submit Your Offer
Writing Up the Offer
Letter of intent
Commercial contract to buy and sell real estate
Liquidated damages clause
Memorandum of agreement
Presenting Your Offer in the Best Light
Filtering Through Deals
Filter 1: The five-minute test
Filter 2: Sign it up!
Filter 3: The quick view
Filter 4: The “realists” check
Filter 5: End users determine the value
WHEN THE OWNER GOES SHOPPING WITH YOUR OFFER
Celebrating Accepted Offers and Moving to the Next Stage
WHAT’S YOUR EXIT STRATEGY?
Due Diligence: Doing Your Homework
Doing Your Due Diligence
Making due diligence a team effort
Physical inspection
Financial investigation
Legal inquiries
Getting to the truth about due diligence
Putting Property Under Contract
Scope out the property
Get a title commitment
Look at the property’s numbers
Creating Checklists for Effective Due Diligence
Physical due diligence checklist
Financial due diligence checklist
Legal due diligence checklist
Managing the Whole Process
Opening an escrow
Getting a preliminary title report
Keeping an eye on contingencies
Digging up (and Solving) Problems
Renegotiating with the seller
Making the final decision
Setting the sails for the closing date
Funding Your Deals: Financing and Lending
Conventional Financing Options
Wading through the Commercial Lending Process
Seeing the process through your lender’s eyes
Keeping things moving without incident
Knowing the Differences between Commercial and Residential Lending
What matters most to commercial lenders
The down payment requirement is higher
Evaluating Properties Like a Lender
Determining the property’s income
Debt coverage ratio
Loan-to-value ratio
Revealing the quality of the property and its neighborhood
Assessing the strength of the borrower
Getting Your Lender to Say, “You’re Approved!”
What your lender needs from you
What lenders need regarding the property
What lenders like in a deal
What lenders don’t like in a deal
Choosing the Best Loan for You
Getting to know conventional lenders
Understanding the available conventional loans
Selecting a lender for your deal
Deciding what you want out of your property
Determining how much the loan will cost you
Knowing the costs of getting out of a loan
Controlling the interest rate (to some extent)
Assuming the Seller’s Preexisting Mortgage
Getting Creative with Financing
Creative Financing Techniques
The Master Lease Technique
THE MASTER LEASE TECHNIQUE IN ACTION
Getting Someone to Carry Owner Financing
Coming up with the Rest of the Money Using Secondary Financing
Using the Existing Financing
SELLERS WANT PRICE, YOU WANT YOUR TERMS
Finding sources of secondary financing
Commercial seconds
Owner carry seconds
Private lenders
Understanding common pitfalls of secondary financing
Getting the owner to agree to finance all or part of the purchase
Dealing with seller objections
Objection 1: “I don’t want to master lease it; I just want to sell it.”
Objection 2: “I want a larger down payment.”
Objection 3: “I need a higher purchase price.”
Operating the Wraparound Mortgage Like a Surgeon
Using an Option to Buy
OPTIONS IN ACTION
Leveraging the Equity in Your Portfolio
Employing blanket mortgages
Drawing on 401(k)s or IRAs
Forming Partnerships and Syndicating Deals
Identifying the Keys to Raising Private Funds
Building Your Database of Potential Investors
Creating relationships with potential investors
Looking to your existing relationships
FUNDING FROM AN UNEXPECTED SOURCE
Knowing where to meet potential investors
Using Keywords to Find the Right Group
Using executive summaries to nab potential investors
Connecting with your investors
Deciding Whether to Go It Alone or Use a Partner or Two
Creating the Right Teams and Partnerships
Joint Ventures and Syndications
Knowing how much to pay your investors
Creating a Compelling Investor Presentation
Writing up the agreements to use with your investors
Considering how long you want to partner with someone
Interviewing a potential partner
Closing Your Deal
Evaluating the Anatomy of a Close
Closing 101: The Basics of Closing a Deal
What is an escrow and who is an escrow officer?
What is title insurance?
Do I need an attorney for my closing?
Do closing costs differ in commercial real estate?
Is it better to close at the end or beginning of the month?
How long does it take to close a commercial deal?
Asking Yourself Big Picture Questions
What are my exit strategies?
Are my investment goals being met?
Sweating the Details before Signing on the Dotted Line
The title work
The closing instructions and closing statement
The lender
Closing Day: What to Expect
What’s on a closing statement?
Sections A through I: General Information
Section J: Summary of Borrower’s Transaction
Section K: Summary of Seller’s Transaction
Section L: Settlement Charges
What exactly will I be signing?
What should I do before signing?
Buyer safety checkpoints before signing
Seller safety checkpoints before signing
When am I officially closed?
Taking Legal Ownership
Acting and Being the Boss
Stage 1: Assess the situation
Stage 2: Assemble the team
Stage 3: Secure the site
Stage 4: Use the info that you discovered
Day-to-Day Ownership and Operations
Property Management: Who’s Minding Your Ship?
Being the Boss: Manage Your Commercial Property Yourself
Improving your management skills with a few basic tips
Developing basic business systems
Doing it Yourself: A checklist
Training your tenants to respect you and the property
Operating successfully day-to-day with the proper people and tools
Letting Go: Using Professional Property Management Companies
Understanding the ins and outs of professional property management
Deciding to hire a professional property management company
Searching for property management candidates
Interviewing your prospective managers
Checking credibility and capability
Drafting the property management agreement
Getting your reports: Monthly and weekly accountability
Typical monthly reports
Weekly reports
Knowing How to Be an Effective Absentee Owner
Protecting Your Assets
Taking Asset Protection Seriously
Create a plan to avoid lawsuits
Plan for the worst and be happy if it doesn’t happen
Building a Legal Fortress for Personal Assets
Making use of entities
Corporations
Limited liability companies
Using your entities to your advantage
Mixing personal and business funds
Ignoring your state’s laws or corporate formalities
Signing personally on real estate or business loans
Gathering essential fail-safe documentation
Protecting Yourself with Common Sense
Treat others as you would like to be treated
Meet any potential problems head-on
Always have proper insurance coverage
Why Properties Fail
What Is a Property Failure?
How You, the Investor, Can Cause Failure
You made a bad deal
Performing poor due diligence
Having insufficient market knowledge
Paying too high of a price
Having exit strategy tunnel vision
Forgetting to run your properties like businesses
You have too much debt
You’re in denial regarding problems
How Management Can Cause a Property to Fail
How the Market Can Cause Failure
The ups and downs of real estate cycles
Buy right and avoid overleveraging
The influence of demographics
THE IMPACT OF THE COVID-19 PANDEMIC
When to Fold Up and Walk Away
Knowing when to fold
Choosing to walk away honorably
FAILURE IS REALLY JUST THE BEGINNING
Tried and True Tips on Surviving and Thriving
Kicking Your Investing into High Gear
Making a Success Out of Commercial Fixer-Uppers
Identifying Commercial Fixer-Uppers
Distressed and poorly performing property
Distressed and poorly performing owner
How to find fixer-uppers
Look for yourself
Hire someone to look for you
Where to buy
Figuring Out What a Fixer-Upper Is Worth
Determining your cash flow
Figuring your NOI, cap rate, and sales price
Running the numbers on an example property
Mapping Out a Fixer-Upper Game Plan
Perform due diligence
Physical inspection
Financial investigation
Legal inquiries
Sales and marketing strategy
Before fix-up and after: Bridging the gap to payday
Determining your break-even point
Creating checkpoints for the renovation process
Financial checkpoints
Rehabilitation checkpoints
Property management checkpoints
Lease-up checkpoints
Avoiding Headaches and Pitfalls (Or at Least Minimizing the Pain)
Recognize hopeless situations
Avoid obsolete properties
Avoid an owner who doesn’t want to play
Avoid properties that have too much debt
Avoid buying properties with bargain-bottom prices
Hire good contractors (and think like one when you do projects yourself)
Timing Your Fixer-Upper for a Quick Sale
WHY COMMERCIAL FIXER-UPPERS WILL BE AROUND FOREVER
Land Development: The Heart of Commercial Real Estate
Weighing the Pros and Cons of Investing in Land
The pros
The cons
Understanding What Makes Land Worth More
Knowing Whether You’re in the Right Market
EXAMINING THE PATH OF PROGRESS
Identifying the Three Ps for Successful Projects
Investing in Land with a Team
Finding the Best Places to Invest in Land
YOU GOTTA KNOW WHEN TO HOLD ’EM
With Land, Time Really Does Equal Money
Using contracts to get more time
STRETCHING THE TIME YOU HAVE TO CLOSE A DEAL: A REAL-LIFE EXAMPLE
Buying time with options
HOW IT TOOK EIGHT MONTHS TO MAKE A MILLION OVERNIGHT
Changing the Property’s Zoning and Getting Approved to Develop
Determining what to build on your land
Taking master plans into consideration
CHANGING ZONING
Keeping a level-head during the approval process
Getting the Green Light on Your Deal
LIFESTYLE DEVELOPMENT POLICY: AN IDEA WHOSE TIME HAS COME
Dealing with bureaucrats
Avoiding neighborhood opposition
Self-Storage: A Favored Asset
Investing in self-storage facilities
Upgrading and converting
Profiting during good times and bad
Choosing the Best Locations
A self-storage deal
A simple way to evaluate a facility
Finding and hiring the right self-storage facility manager
Keeping an eye out for your next manager
Tips to choosing a good manager
Getting funding from investors
Marketing Self-Storage Facilities
Building a self-storage website
Using Social Media
Paying for clicks (PPC)
Keeping it traditional: flyers & billboards
Expert Tax Advantages and Strategies
An Overview of Money-Making Tax Strategies
Appreciation
Depreciation
Paying down the mortgage
Rolling over
Being an Investor or a Dealer: The Difference Is Huge
Holding real estate long term as an investor
Comparing wholesalers and dealers
Naming Yourself a Real Estate Professional: It Pays
Choosing Your Entity: An Important Tax Preparation Before You Buy
Sole proprietorships
Corporations
Limited liability companies
SO, YOU PLAN ON SELLING?
Limited partnerships
Digging into Depreciation
The magic of depreciation
Don’t “recapture” your depreciation
Cost segregation: Saving thousands more by separating your property parts
Coming up with the value for cost segregation
Figuring out how cost segregation puts cash in your pockets
Avoiding Taxes by Trading in for Another Property: The 1031 Exchange:
Before anything else, get expert help
Surveying the exchange rules
Taking Advantage of Some Commonly Overlooked Deductions
Accounting expenses
Consulting expenses
Home office expenses
All property-related expenses
Transportation to and from your properties
Expenses for your technology gizmos
The Part of Tens
Ten Ways to Increase Your Property Value
Raising the Rents
Budgeting Your Way to Wealth
Giving the Property a Makeover
Changing the Property’s Use
Adding Goodies to the Property
Standing Up to the Tax Man
Passing Utility Expenses to Tenants
Renegotiating the Leases
Bringing in a New Management Team
Adding Value to Land
Ten Easy Ways to Network
Finding Easy Places to Network
Getting Your CCIM Designation
Putting Power in Your Search Engines
Going Directly to the Investment Firms
Reading the Trades
Joining a National Association
Getting Involved with BOMA
Enlisting with the ICSC
Becoming Affiliated with the IREM
Staying Current and Connected
Index
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
R
S
T
U
V
W
Z
About the Authors
Dedication
Author’s Acknowledgments
WILEY END USER LICENSE AGREEMENT
