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Commercial Real Estate Investing For Dummies
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- Product Details
- About the Author
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- Table of Contents
If you're looking for more detailed advice on the commercial real estate market than, "Buy low, sell high," you've come to the right place. Commercial Real Estate Investing For Dummies is where you can find the smart, straightforward, and accurate info you need to get your start—or grow your portfolio—in commercial real estate.
You'll learn foundational strategies, tips, and tricks for investing in all sorts of commercial properties, from apartments to shopping malls. You'll also get rock-solid advice on:
- How to get started in commercial real estate investing, even if you've never tried it before
- How to work with business and investment partners and protect your own interests with contracts
- Financing your investments with a variety of instruments and taking advantage of legal tax opportunities
Growing wealth by investing in real estate is a strategy as old as money itself. Do yourself a favor and get in on the action with this straightforward and up-to-date guide!
ISBN-13: 9781119858485
Media Type: Paperback(2nd ed.)
Publisher: Wiley
Publication Date: 05-03-2022
Pages: 400
Product Dimensions: 7.30(w) x 8.90(h) x 1.00(d)
Series: For Dummies Books
Peter Conti bought his first commercial property in 1990. He coaches beginner investors on commercial real estate investment. He founded RealEstate101.com. Peter Harris is the Director of Education at Commercial Property Advisors. He has personally mentored hundreds of commercial real estate investors nationwide since 2003.
Read an Excerpt
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 371Table of Contents
Introduction 1