Are you interested in Investing in Real Estate?
Let me guess, you attended a real estate seminar where they sold you a bunch of books and promised to teach you how to buy real estate with NO money down and next to 0% financing. You’re now ready to go out and search for property that with a total investment of $1,000 is going to turn into $1,000,000 because you bought the property.
Once you find your commercial or residential real estate investment property you’ll need financing. If it is commercial you’ll probably hit up a couple specialty financing firms that offer 5-7% interest rates on a 75%, 30 yr am, 10 fixed, 5pt loan, with a 20% Mezzanine at 8-9 over prime and 5% down. Sounds good right? Let me guess, you didn’t understand half that, and when you hand the mortgage broker an upfront ”Admin” fee of $4K and he returns the favor with a 75% bridge loan at 10-12% over prime, you’ll be scratching your head wondering how the bank ran off with your money and you still HAVE NOTHING!
0% Down… not a chance… 5% maybe in 2005… 10% maybe in 2006… 20% not since sometime in 2007, 25% now we can do business, if you have 15 years of experience a networth of double the value of the subject property and 3 other gaurantors.
Don’t buy a book that has been sold to millions of others telling you you can buy property for 5% down. It isn’t going to happen…. and if it was going to happen EVERYONE else would be doing it. In real estate you can’t be a Cow and stay in the pasture, you need to be a Bull and venture out… the grass is always greener where less teeth have chomped.
FIRST, pick your approach. Are you looking for a value add property, or fully leased NNN Commercial Property? Do you want Residential or Commercial Property?
For the purposes of prosperity let’s focus on Commercial property.
Investors will tell you “DO NOT put all your eggs in one basket” What are the eggs? …and What’s the basket? In Real Estate the “eggs” aren’t just your dollars, they are your tenants. Unlike Residential Real Estate, when you sign a Commercial Lease, you sign a 5+ year partnership agreement. Successful tenants are worth more to you than just money… they are the “egg.”
Many investors look for NNN Single Tenant investments, for example, the Walgreens or CVS store on the intersection closest to your home is actually owned by some 1031 Exchange buyer who bought the property for a good CAP Rate return.
JUST THINK ABOUT IT FOR A MINUTE. The property is 100% occupied by a AAA Credit tenant who pays ALL Expenses associated with the building (NNN).
But who is AAA?
Would you rather have Blockbuster or Dollar General?
If you said “Blockbuster” you just made your first $2 million dollar mistake. Dollar General is a AAA tenant, whereas Blockbuster is CC.
Even if you are able to pick your tenant’s wisely they could be forced out of business over night, and when they do your 100% NNN leased investment just became a worthless 100% vacant investment property. Just look at Bombay Company… they went bankrupt, consolidated, and closed up shop.
If your strategy is Commercial Real Estate Investment, stick with multi-tenant properties. A strip mall with four tenants is much more stable than a McDonalds on the corner of two major interstate highways. Why? Because if one leaves you have continued income from the others while you release the property.
Banks looking to finance your property will frown upon NNN Single tenant deals. The first thing they look at is worse case scenario. Worst case scenario is your tenant leaves and you can no longer afford to pay the loan.
If you are looking at purchasing a multi-tenant property, chances are the seller has an asking price similar to the properties fully leased CAP rate value. If they are only 25% leased the property isn’t worth anything close to the CAP Rate, and you won’t get the financing.
The best thing you can do when investing in Real Estate is find a Real Estate broker you can trust and stick with them. A good Real Estate Professional will guide you through the process of acquiring property and stick by your side as a Real Estate Advisor for years to come. If you are investing consult a Commercial Real Estate Broker. Even if you are looking at single family homes, Commercial Real Estate Brokers analyze properties and rents on a daily basis, Residential Real Estate Brokers do not. However, some Residential Real Estate Broker ’s are more qualified to assist property investors than others. If you choose to use a Resdiential Real Estate Broker, interview them and make sure they are equipped to run a proper analysis of your investment.
When using a broker always use a LOCAL broker. For example, if you are in Greensboro North Carolina and want to buy Commercial Property in Raleigh North Carolina, don’t bring your broker up from Greensboro, use a local representative. If you are good friends with your Greensboro Commercial Broker, let him find the Raleigh Commercial Broker and work together.
Nobody knows the market better than the local brokers. A Cary Commercial Real Estate Broker knows Cary, NC the best. A Raleigh Commercial Real Estate Broker knows Raleigh, NC the best. If you are looking throughout the Triangle Area in NC, you need a broker who knows Chapel Hill, Durham, Cary, Raleigh, RTP, and surrounding areas. When interviewing a Commercial Real Estate Broker ask him/her what makes them an expert in the market they are working in, how many days a week to they spend researching their markets? How often do they do deals in different markets? What qualifies them to be your Commercial Real Estate Broker?
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