Introduction 1
About This Book 1
Foolish Assumptions 2
Icons Used in This Book 2
Beyond the Book 3
Where to Go from Here 3
Part 1: Getting to Know Commercial Real Estate Investing 5
Chapter 1: Just Imagine Commercial Real Estate and You! 7
Defining Commercial Real Estate 8
Getting Started 9
Making money with commercial real estate investing 9
Categorizing investors 10
Crunching the numbers 12
Exploring investing opportunities 13
Financing a property 13
Understanding the Risks of Commercial Real Estate 14
Avoiding lawsuits, the most feared risk 14
Risk-proofing your investment plan 15
Chapter 2: A Crash Course in Commercial Real Estate Investing 17
Comparing Commercial Real Estate and Residential Real Estate 18
Deciding to Invest in Commercial Real Estate 19
Exploring the Available Types of Investments 21
Apartment buildings (also known as residential properties) 21
Office buildings 22
Retail centers 23
Warehouses or industrial properties 23
Self-Storage Facilities 23
Hotels and resorts 24
Getting Started 25
Easily meeting people and making new friends 25
Doing simple math 26
Accounting and collecting 26
Recognizing Myths and Questions about Investing in Commercial Real Estate 26
Timing the Commercial Real Estate Market 28
Knowing whether to buy, hold, or bottom-fish 28
Following Trends 31
Chapter 3: Evaluating Commercial Real Estate 33
Talking the Talk: Terms You Need to Know 34
The Commercial Property Evaluator 37
Why Seller’s Numbers Can’t Be Trusted 37
How the Commercial Property Evaluator Works 38
Diving Deeper into Property Valuation 41
Not-so-obvious tips on analyzing 42
Breakeven analysis 44
Establish and follow guiding principles 44
Running the Numbers on Some Properties 46
Analyzing an apartment deal 47
Analyzing a retail shopping center 49
Valuing Properties like a Professional 52
Approach #1: Comparable sales 53
Approach #2: Income 54
Approach #3: Cost to replace the property 54
Understanding What Creates Value 55
Use: How the property is used gives value 55
Leases: As the lease goes, so goes the value 56
Location: The unchangeable factor 58
Differentiating a Good Deal from a Bad Deal 60
Cash-flow investors 60
Long-term investors 61
Short-term investors 61
Part 2: Getting Started Making Deals 63
Chapter 4: Getting Started by Wholesaling 65
Navigating Too Many Deals 66
Wholesaling Apartment Buildings 68
Getting started without very much money 68
A Wholesaling Example 69
Getting Started: The Five Steps 70
Step one — generating leads 70
Step two — analyzing properties 71
Step three — getting it under contract 72
Step four — finding a buyer 73
Step five — close and get paid 74
Buying From Wholesalers 74
Other Tips to Closing a Wholesale Deal 75
Make sure you help the seller 76
Put your reputation ahead of making money 76
Identifying what a good deal looks like 77
Snagging a Good Deal from Lazy Landlords 77
Choosing the right neighborhoods 78
Acquiring the Tools of the Trade 79
Chapter 5: On Your Mark, Get Set, Go Find Deals 81
Discovering the Secret to Finding Great Deals 81
Defining your property search 82
Developing relationships 83
Getting Leads on Commercial Property Investments 84
Branching out 84
Fishing for Leads on Branch One Properties 85
Finding Branch Two Properties 85
Dealing with government agencies 85
Negotiating with realtors and brokers 86
Joining property owner associations 87
Networking with real estate investment clubs 88
Looking Locally and Nationwide 89
Surveying the pros and cons of local investing 90
Investing outside of your community 90
Determining your location with demographics 91
Locking Down Deals: Don’t Leave Home without These Strategies 93
Allowing the Great Deals to Find You 94
Attracting owners with reports 94
Making unsolicited offers 95
Discovering properties that have been relisted 95
Chapter 6: Strategies for Making Offers and Negotiating 97
Increasing Your Chances of Getting Your Offer Accepted 98
Starting with the end in mind 98
Sizing up the sellers and what they really want 98
Sealing Deals: The Instant Offer System 100
Step 1: Build rapport with the broker or seller 100
Step 2: Establish an up-front agreement 102
Step 3: Build the broker’s or seller’s motivation level for selling 102
Step 4: Determine the financial details of the deal (The Money Step) 104
Step 5: Find the critical pieces to a winning deal (The What-If Step) 106
Meeting the Seller to Submit Your Offer 107
Writing Up the Offer 108
Letter of intent 109
Commercial contract to buy and sell real estate 110
Liquidated damages clause 110
Memorandum of agreement 111
Presenting Your Offer in the Best Light 111
Filtering Through Deals 112
Filter 1: The five-minute test 112
Filter 2: Sign it up! 113
Filter 3: The quick view 113
Filter 4: The “realists” check 114
Filter 5: End users determine the value 115
Celebrating Accepted Offers and Moving to the Next Stage 116
Chapter 7: Due Diligence: Doing Your Homework 119
Doing Your Due Diligence 120
Making due diligence a team effort 121
Getting to the truth about due diligence 123
Putting Property Under Contract 124
Scope out the property 125
Get a title commitment 125
Look at the property’s numbers 125
Creating Checklists for Effective Due Diligence 126
Physical due diligence checklist 127
Financial due diligence checklist 128
Legal due diligence checklist 129
Managing the Whole Process 131
Opening an escrow 131
Getting a preliminary title report 132
Keeping an eye on contingencies 134
Digging up (and Solving) Problems 136
Renegotiating with the seller 137
Making the final decision 138
Setting the sails for the closing date 138
Part 3: Funding Your Deals: Financing and Lending 141
Chapter 8: Conventional Financing Options 143
Wading through the Commercial Lending Process 144
Seeing the process through your lender’s eyes 144
Keeping things moving without incident 146
Knowing the Differences between Commercial and Residential Lending 147
What matters most to commercial lenders 148
The down payment requirement is higher 148
Evaluating Properties Like a Lender 149
Determining the property’s income 149
Revealing the quality of the property and its neighborhood 151
Assessing the strength of the borrower 153
Getting Your Lender to Say, “You’re Approved!” 154
What your lender needs from you 154
What lenders need regarding the property 155
What lenders like in a deal 156
What lenders don’t like in a deal 156
Choosing the Best Loan for You 157
Getting to know conventional lenders 158
Understanding the available conventional loans 159
Selecting a lender for your deal 161
Deciding what you want out of your property 162
Determining how much the loan will cost you 163
Knowing the costs of getting out of a loan 164
Controlling the interest rate (to some extent) 165
Assuming the Seller’s Preexisting Mortgage 166
Chapter 9: Getting Creative with Financing 169
Creative Financing Techniques 170
The Master Lease Technique 173
Getting Someone to Carry Owner Financing 174
Coming up with the Rest of the Money Using Secondary Financing 176
Using the Existing Financing 176
Finding sources of secondary financing 178
Understanding common pitfalls of secondary financing 180
Getting the owner to agree to finance all or part of the purchase 180
Dealing with seller objections 181
Operating the Wraparound Mortgage Like a Surgeon 183
Using an Option to Buy 184
Leveraging the Equity in Your Portfolio 185
Employing blanket mortgages 185
Drawing on 401(k)s or IRAs 185
Chapter 10: Forming Partnerships and Syndicating Deals 187
Identifying the Keys to Raising Private Funds 188
Building Your Database of Potential Investors 189
Creating relationships with potential investors 189
Using executive summaries to nab potential investors 193
Connecting with your investors 194
Deciding Whether to Go It Alone or Use a Partner or Two 195
Creating the Right Teams and Partnerships 195
Joint Ventures and Syndications 196
Knowing how much to pay your investors 196
Creating a Compelling Investor Presentation 197
Writing up the agreements to use with your investors 199
Considering how long you want to partner with someone 199
Interviewing a potential partner 199
Chapter 11: Closing Your Deal 201
Evaluating the Anatomy of a Close 202
Closing 101: The Basics of Closing a Deal 203
What is an escrow and who is an escrow officer? 203
What is title insurance? 203
Do I need an attorney for my closing? 204
Do closing costs differ in commercial real estate? 205
Is it better to close at the end or beginning of the month? 206
How long does it take to close a commercial deal? 206
Asking Yourself Big Picture Questions 207
What are my exit strategies? 207
Are my investment goals being met? 207
Sweating the Details before Signing on the Dotted Line 208
The title work 208
The closing instructions and closing statement 209
The lender 210
Closing Day: What to Expect 211
What’s on a closing statement? 211
What exactly will I be signing? 213
What should I do before signing? 214
When am I officially closed? 216
Taking Legal Ownership 216
Acting and Being the Boss 217
Stage 1: Assess the situation 218
Stage 2: Assemble the team 218
Stage 3: Secure the site 219
Stage 4: Use the info that you discovered 220
Part 4: Day-to-Day Ownership and Operations 221
Chapter 12: Property Management: Who’s Minding Your Ship? 223
Being the Boss: Manage Your Commercial Property Yourself 224
Improving your management skills with a few basic tips 224
Developing basic business systems 226
Doing it Yourself: A checklist 227
Training your tenants to respect you and the property 228
Operating successfully day-to-day with the proper people and tools 230
Letting Go: Using Professional Property Management Companies 232
Understanding the ins and outs of professional property management 232
Deciding to hire a professional property management company 233
Searching for property management candidates 234
Interviewing your prospective managers 235
Checking credibility and capability 236
Drafting the property management agreement 237
Getting your reports: Monthly and weekly accountability 240
Knowing How to Be an Effective Absentee Owner 243
Chapter 13: Protecting Your Assets 245
Taking Asset Protection Seriously 245
Create a plan to avoid lawsuits 246
Plan for the worst and be happy if it doesn’t happen 247
Building a Legal Fortress for Personal Assets 247
Making use of entities 248
Using your entities to your advantage 249
Gathering essential fail-safe documentation 251
Protecting Yourself with Common Sense 252
Treat others as you would like to be treated 252
Meet any potential problems head-on 252
Always have proper insurance coverage 253
Chapter 14: Why Properties Fail 255
What Is a Property Failure? 256
How You, the Investor, Can Cause Failure 256
You made a bad deal 257
You have too much debt 259
You’re in denial regarding problems 260
How Management Can Cause a Property to Fail 261
How the Market Can Cause Failure 263
The ups and downs of real estate cycles 264
Buy right and avoid overleveraging 265
The influence of demographics 266
When to Fold Up and Walk Away 268
Knowing when to fold 268
Choosing to walk away honorably 268
Tried and True Tips on Surviving and Thriving 270
Part 5: Kicking Your Investing into High Gear 273
Chapter 15: Making a Success Out of Commercial Fixer-Uppers 275
Identifying Commercial Fixer-Uppers 276
Distressed and poorly performing property 277
Distressed and poorly performing owner 277
How to find fixer-uppers 279
Where to buy 281
Figuring Out What a Fixer-Upper Is Worth 282
Determining your cash flow 283
Figuring your NOI, cap rate, and sales price 283
Running the numbers on an example property 285
Mapping Out a Fixer-Upper Game Plan 286
Perform due diligence 287
Before fix-up and after: Bridging the gap to payday 290
Determining your break-even point 291
Creating checkpoints for the renovation process 292
Avoiding Headaches and Pitfalls (Or at Least Minimizing the Pain) 295
Recognize hopeless situations 295
Hire good contractors (and think like one when you do projects yourself) 296
Timing Your Fixer-Upper for a Quick Sale 297
Chapter 16: Land Development: The Heart of Commercial Real Estate 299
Weighing the Pros and Cons of Investing in Land 300
The pros 300
The cons 300
Understanding What Makes Land Worth More 301
Knowing Whether You’re in the Right Market 302
Identifying the Three Ps for Successful Projects 303
Investing in Land with a Team 304
Finding the Best Places to Invest in Land 305
With Land, Time Really Does Equal Money 307
Using contracts to get more time 307
Buying time with options 309
Changing the Property’s Zoning and Getting Approved to Develop 310
Determining what to build on your land 311
Taking master plans into consideration 311
Keeping a level-head during the approval process 313
Getting the Green Light on Your Deal 315
Dealing with bureaucrats 317
Avoiding neighborhood opposition 318
Chapter 17: Self-Storage: A Favored Asset 319
Investing in self-storage facilities 320
Upgrading and converting 321
Profiting during good times and bad 322
Choosing the Best Locations 324
A self-storage deal 324
A simple way to evaluate a facility 325
Finding and hiring the right self-storage facility manager 325
Keeping an eye out for your next manager 326
Tips to choosing a good manager 327
Getting funding from investors 327
Marketing Self-Storage Facilities 328
Building a self-storage website 329
Using Social Media 330
Paying for clicks (PPC) 330
Keeping it traditional: flyers & billboards 331
Chapter 18: Expert Tax Advantages and Strategies 333
An Overview of Money-Making Tax Strategies 334
Appreciation 334
Depreciation 335
Paying down the mortgage 335
Rolling over 336
Being an Investor or a Dealer: The Difference Is Huge 336
Holding real estate long term as an investor 337
Comparing wholesalers and dealers 337
Naming Yourself a Real Estate Professional: It Pays 338
Choosing Your Entity: An Important Tax Preparation Before You Buy 339
Sole proprietorships 341
Corporations 341
Limited liability companies 341
Limited partnerships 342
Digging into Depreciation 342
The magic of depreciation 343
Don’t “recapture” your depreciation 344
Cost segregation: Saving thousands more by separating your property parts 345
Avoiding Taxes by Trading in for Another Property: The 1031 Exchange: 347
Before anything else, get expert help 348
Surveying the exchange rules 349
Taking Advantage of Some Commonly Overlooked Deductions 350
Accounting expenses 351
Consulting expenses 351
Home office expenses 351
All property-related expenses 352
Transportation to and from your properties 352
Expenses for your technology gizmos 352
Part 6: The Part of Tens 353
Chapter 19: Ten Ways to Increase Your Property Value 355
Raising the Rents 356
Budgeting Your Way to Wealth 356
Giving the Property a Makeover 357
Changing the Property’s Use 358
Adding Goodies to the Property 358
Standing Up to the Tax Man 359
Passing Utility Expenses to Tenants 360
Renegotiating the Leases 360
Bringing in a New Management Team 361
Adding Value to Land 361
Chapter 20: Ten Easy Ways to Network 363
Finding Easy Places to Network 364
Getting Your CCIM Designation 364
Putting Power in Your Search Engines 365
Going Directly to the Investment Firms 366
Reading the Trades 367
Joining a National Association 367
Getting Involved with BOMA 368
Enlisting with the ICSC 368
Becoming Affiliated with the IREM 369
Staying Current and Connected 369
Index 371
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