In commercial real estate you must have a Tight Niche Focus in order to be a successful investor. You absolutely need to know what type of property of what size, age and condition you are looking for and what you intend to do to add value once you buy it. It is basically a case of Focus or Fail. If you look at every property on the market and are cruising LoopNet for hours looking for a "good deal". You are totally wasting your time. This flies in the face of what many Residential Real Estate Investors were taught when they were buying single family houses.
Many single family houses buyers look for the "motivated seller". They'll look at any property they can purchase at a wholesale price, no matter where it is, what size it is or how much it costs. If you take this "I'll look at anything with meat on the bones" mentality to the Commercial Real Estate side, you will fail . . . case closed.
Commercial Real Estate has so much more to offer. There are so many different Property "Flavors". Commercial is like an all-you-can-eat buffet compared to the hot dog stand of Residential Property. Different Asset Types, business plans, neighborhoods, market forces . . . if you don't have a Tight Niche Focus you will be like a kid in a candy shop. You will literally waste thousands of hours of your time and never become an expert . . . never build that profitable portfolio.
Here is an Example of a Tight Niche Focus: With this level of Focus, you can clearly see when a property is or is not an opportunity for a successful investment that fits your strategy.
MultiFamily:
75 to 150 units
1970 and 1980 built - Class "B" - "C"
Vacancy rate of over 15%, only minor rehab needed, economic loss 25% or more
Business plan is economic reposition by raising rents and occupancy to the market rates, cosmetic rehab, hold for three to five years and sell on the improved Net Operating Income
The Four Benefits of Tight Niche Focus: When you are focused on a specific property and a specific business plan four things will happen very quickly.
Find the Right Market(s) Quickly With your tight focus you can quickly find the best Markets and best neighborhoods in those Markets for your chosen Niche.
You will be much more effective at screening opportunities. The tight niche focus will allow you to quickly identify the properties that are in your Niche and say "yes" or "no" to further research instantly. You will toss any deal that is not a fit and be focused immediately on the lucrative deals that DO meet your niche criteria.
You will become an Expert in your Niche, very quickly. The tighter your focus the more quickly you can wrap your brain around all the variables in that Asset Type, Asset Class and Business Plan. You will quickly learn the success factors and things to avoid in your specific properties. Only a tight focus will allow this rapid accumulation of expertise.
You will be able to build a Niche Focused Team. When you can tell your team of Brokers, Mortgage Brokers, Property Managers and Field Partners EXACTLY what you are looking for they'll be able to bring you quality leads very very quickly.
Three Steps to Pick Your Niche
Choose an Asset Type: Class "A" building to buy and hold for a steady return? Retail, Office, Multi-Family, Industrial, Hospitality, Development
Choose an Asset Class: Do you want a brand new, fully rented , modern, Class "A" building to buy and hold for a steady return? or something that's a little older . . . maybe Class "C" with some problems you can fix to force additional appreciation?
Choose a Business Plan: Is this a Buy and Hold, Economic Reposition, Rehab, Re-purpose (warehouse to residential condos? What is your business plan?
Now it is Your Turn . . . Go through the exercise of picking your Asset Class, Asset Type and Business Plan. This Tight Niche Focus will accelerate your ability to find quality properties and grow your portfolio.
Learn the Insider Secrets of Commercial Property Investment from Monte Lee-Wen who has personally purchased over $150M in Commercial Real Estate. CLICK THIS LINK NOW to start your Commercial Real Estate Investing Education with his 14 page FREE Report "35 Reasons You Should Invest in Commercial Real Estate". http://www.investortours.com
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Article Source: http://EzineArticles.com/?expert=Monte_Lee-Wen
Tuesday, May 27, 2008
Are New Build Apartments A Good Investment Or Are They About To Crash?
Take a walk through most city centres or riverside areas such as the Thames and you will see numerous tower cranes, most of them being used in the construction of one, two and three bedroom apartments. It begs the question: Are the developers building too many of this type of housing, or is there still a strong demand. In some areas of the country there is simply an oversupply and some proposed developments have been mothballed completely.
Places such as Leeds, Nottingham, Leicester and Ipswich, which have been intensively developed, have now been recognized as only having a modest demand. Prices for these properties largely depend on supply and demand and in areas of oversupply prices are plummeting. Both aspiring and experienced landlords have purchased many apartments as buy to let investments and in areas of oversupply there may be dozens of properties for every potential tenant. This has caused the value of these properties to fall but the mortgage payments remain the same. Rents in areas of over supply have to be reduced to attract tenants and they often do not cover the monthly mortgage repayments meaning that they become an even less attractive prospect to would be investors. Some property investor gurus have been predicting a crash in apartment prices for a few years now so will their predictions come true in 2008?
The question may be answered by simply looking at supply and demand for property in general in the UK. The government estimates that approximately 230,000 new homes are required to be built every year to cope with our growing population, but only 160,000 are actually being built leaving a shortfall over 20 years of over a million homes. People are living longer due to healthier lifestyles and there are a growing number of single people due to our modern lifestyles and values. People are less likely to stay in a difficult relationship these days and are much more likely to opt for a single life for a while. Add to the equation, a shortage of work skills and the requirement for overseas workers to set up residence in the UK and in the long term it seems that there will be a very strong demand for affordable housing.
There seems to be a hiccup in the property market at present, which is due to the lending businesses i.e. banks and building societies who, we are told, facing difficulties in liquidity and are toughening up their lending criteria. In America several banks have gone bankrupt and in the UK Northern Rock has recently been nationalized by the British government. Some lenders are not passing on interest rate cuts to tracker mortgages following cuts to the bank of England base rate due, which they say is due to the current liquidity crisis.
This all makes for interesting times ahead. The general consensus seems to be that in the short term property prices may fall or at least not gain much in 2008 but in the long term supply and demand will cause prices to continue rising.
To save estate agents fees you can sell property privately at http://www.sellmypropertyonline.co.uk for a small fee.
Article Source: http://EzineArticles.com/?expert=Ian_Wagstaff
Places such as Leeds, Nottingham, Leicester and Ipswich, which have been intensively developed, have now been recognized as only having a modest demand. Prices for these properties largely depend on supply and demand and in areas of oversupply prices are plummeting. Both aspiring and experienced landlords have purchased many apartments as buy to let investments and in areas of oversupply there may be dozens of properties for every potential tenant. This has caused the value of these properties to fall but the mortgage payments remain the same. Rents in areas of over supply have to be reduced to attract tenants and they often do not cover the monthly mortgage repayments meaning that they become an even less attractive prospect to would be investors. Some property investor gurus have been predicting a crash in apartment prices for a few years now so will their predictions come true in 2008?
The question may be answered by simply looking at supply and demand for property in general in the UK. The government estimates that approximately 230,000 new homes are required to be built every year to cope with our growing population, but only 160,000 are actually being built leaving a shortfall over 20 years of over a million homes. People are living longer due to healthier lifestyles and there are a growing number of single people due to our modern lifestyles and values. People are less likely to stay in a difficult relationship these days and are much more likely to opt for a single life for a while. Add to the equation, a shortage of work skills and the requirement for overseas workers to set up residence in the UK and in the long term it seems that there will be a very strong demand for affordable housing.
There seems to be a hiccup in the property market at present, which is due to the lending businesses i.e. banks and building societies who, we are told, facing difficulties in liquidity and are toughening up their lending criteria. In America several banks have gone bankrupt and in the UK Northern Rock has recently been nationalized by the British government. Some lenders are not passing on interest rate cuts to tracker mortgages following cuts to the bank of England base rate due, which they say is due to the current liquidity crisis.
This all makes for interesting times ahead. The general consensus seems to be that in the short term property prices may fall or at least not gain much in 2008 but in the long term supply and demand will cause prices to continue rising.
To save estate agents fees you can sell property privately at http://www.sellmypropertyonline.co.uk for a small fee.
Article Source: http://EzineArticles.com/?expert=Ian_Wagstaff
Successful Financial Strategies For Buying Commercial Real Estate
If you've grown weary of paying rent for your current business space, or have considered purchasing commercial real estate as a long-term equity investment, there are several important factors that can maximize your financial opportunities and minimize your risks.
First of all, do your homework and educate yourself on the various costs involved. Unlike residential real estate, commercial property has extra fees and costs, which are not immediately apparent. So make sure you have the complete picture before you buy. Potential property expenses include (but are not limited to):
• Property taxes - Underwriters use the real tax numbers instead of an estimate used for residential properties.
• Insurance - The requirements the underwriter will have are often different (and more) than what the owner is currently and usually carrying. The buyers will have to comply with the underwriter's insurance requirements.
• Management fees - Costs will vary depending on your set-up. If you will be taking care of things like landscaping contracts and building maintenance, you may be charged a simple flat fee for managing the tenant administration. If you outsource everything to the firm and the building has several tenants, the fees may be based on a percentage of the rentable square feet (RSF) or usable square feet (USF) for each tenant.
• Replacement reserves - These are funds set aside for the replacement of things like pavement, HVAC and other systems that have a limited, predictable lifespan. On many transactions, replacement reserves are established by having a Property Condition Assessment (PCA) done by a qualified engineer. The amount of reserves required will be determined by the engineer's estimates of the remaining life of the major systems.
• Tenant Improvements and Leasing Commission (TILC's) - Expense to improve the property to attract new tenants to new or vacated space, which may include new improvements or remodeling. This expense applies to office, retail and industrial properties.
These expenses don't include ongoing fees such as maintenance and administrative costs. All such costs need to be figured in and the predicted cash flow determined when considering the cost of the property.
Once you know your what your expense outlay is going to be, it's time to assess your financing. Where will your money be coming from? Options include other investors, business partners, your own capital, borrowing against other investments or properties, and bank loans.
Many purchasers jump immediately to the last option. However, it is not uncommon for banks to turn down business owners even if they have great credit and a positive cash flow. Reasons include:
• Loan size - The loan amount requested might exceed the limit the bank can lend to any one borrower.
• Borrower can't prove income - In a large percentage of cases, the tax returns and financial statements of small business owners do not support the loan amount. Most small business owners do not show an income; instead they show a loss to avoid taxes. This results in an automatic decline for most banks.
• Portfolio management - A high quality loan request may be denied because the bank has to keep its portfolio balanced. Regulators keep an eye on the particular property types a bank has in its portfolio. If the portfolio contains too much of a particular property type, the bank may not be allowed to lend on this property.
• Property type is outside of their specialty - Many banks specialize in a particular type of lending (such as non-owner occupied commercial property loans). If a borrower requests financing for a property type other than their specialty (such as owner occupied commercial property loan), the loan request will be denied.
With good credit and at least 10% to 20% down payment, you should be able to secure some form of financing. Your company's current bank may be the place to start since you have a history with them. To find more options and competitive rates, consider commercial brokerage firms, which specialize in matching commercial real estate buyers with commercial lenders.
Finally, you need to know your financial risk and decrease it whenever possible. For example, a multi-tenant building is almost always a safer bet than a single-tenant option, since it's unlikely that all your tenants will depart at the same time. Also, several pre-existing tenants with long-term leases will make getting a loan an easier sell than trying to pitch the bank on financing a vacant, single-tenant building that's not currently producing income. Knowing your risks and taking steps towards mitigating them may make the difference between a continual financial burden and a sizable financial gain.
Kimberlyn Williams is president and owner of KRT Commercial Brokerage Loans & Leasing (http://www.krtcb.com), a financial service firm specializing in mortgage loans and equipment leasing for commercial industries.
Article Source: http://EzineArticles.com/?expert=Kimberlyn_Williams
First of all, do your homework and educate yourself on the various costs involved. Unlike residential real estate, commercial property has extra fees and costs, which are not immediately apparent. So make sure you have the complete picture before you buy. Potential property expenses include (but are not limited to):
• Property taxes - Underwriters use the real tax numbers instead of an estimate used for residential properties.
• Insurance - The requirements the underwriter will have are often different (and more) than what the owner is currently and usually carrying. The buyers will have to comply with the underwriter's insurance requirements.
• Management fees - Costs will vary depending on your set-up. If you will be taking care of things like landscaping contracts and building maintenance, you may be charged a simple flat fee for managing the tenant administration. If you outsource everything to the firm and the building has several tenants, the fees may be based on a percentage of the rentable square feet (RSF) or usable square feet (USF) for each tenant.
• Replacement reserves - These are funds set aside for the replacement of things like pavement, HVAC and other systems that have a limited, predictable lifespan. On many transactions, replacement reserves are established by having a Property Condition Assessment (PCA) done by a qualified engineer. The amount of reserves required will be determined by the engineer's estimates of the remaining life of the major systems.
• Tenant Improvements and Leasing Commission (TILC's) - Expense to improve the property to attract new tenants to new or vacated space, which may include new improvements or remodeling. This expense applies to office, retail and industrial properties.
These expenses don't include ongoing fees such as maintenance and administrative costs. All such costs need to be figured in and the predicted cash flow determined when considering the cost of the property.
Once you know your what your expense outlay is going to be, it's time to assess your financing. Where will your money be coming from? Options include other investors, business partners, your own capital, borrowing against other investments or properties, and bank loans.
Many purchasers jump immediately to the last option. However, it is not uncommon for banks to turn down business owners even if they have great credit and a positive cash flow. Reasons include:
• Loan size - The loan amount requested might exceed the limit the bank can lend to any one borrower.
• Borrower can't prove income - In a large percentage of cases, the tax returns and financial statements of small business owners do not support the loan amount. Most small business owners do not show an income; instead they show a loss to avoid taxes. This results in an automatic decline for most banks.
• Portfolio management - A high quality loan request may be denied because the bank has to keep its portfolio balanced. Regulators keep an eye on the particular property types a bank has in its portfolio. If the portfolio contains too much of a particular property type, the bank may not be allowed to lend on this property.
• Property type is outside of their specialty - Many banks specialize in a particular type of lending (such as non-owner occupied commercial property loans). If a borrower requests financing for a property type other than their specialty (such as owner occupied commercial property loan), the loan request will be denied.
With good credit and at least 10% to 20% down payment, you should be able to secure some form of financing. Your company's current bank may be the place to start since you have a history with them. To find more options and competitive rates, consider commercial brokerage firms, which specialize in matching commercial real estate buyers with commercial lenders.
Finally, you need to know your financial risk and decrease it whenever possible. For example, a multi-tenant building is almost always a safer bet than a single-tenant option, since it's unlikely that all your tenants will depart at the same time. Also, several pre-existing tenants with long-term leases will make getting a loan an easier sell than trying to pitch the bank on financing a vacant, single-tenant building that's not currently producing income. Knowing your risks and taking steps towards mitigating them may make the difference between a continual financial burden and a sizable financial gain.
Kimberlyn Williams is president and owner of KRT Commercial Brokerage Loans & Leasing (http://www.krtcb.com), a financial service firm specializing in mortgage loans and equipment leasing for commercial industries.
Article Source: http://EzineArticles.com/?expert=Kimberlyn_Williams
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