Posts Tagged ‘invest’
Why Medium Commercial Properties Are Better
While almost every real estate professional with an opinion says that apartment complexes with over 150 units are the way to go, it’s not necessarily true. Multifamily complexes are indeed a great investment. However, what you really want to invest in is where you earn the most rent per unit. Often that is in complexes with less than 100 units.
When you are making a purchase bid for a large complex, you are often bidding against financial intuitions with deep pockets. This creates two distinct disadvantages for you as an individual investor.
First, most individual commercial investors are forced to join a large consortium of other investors to get in on a multi-million dollar deal. This dilutes your ownership and the weight your opinion counts within the large partnership.
Second, when your partnership is bidding with the last ten thousand it has to invest, the large institution can easily out bid you by several thousand more than you can raise. Going up against institutional investors can be overwhelming.
There are many other reasons to invest in complexes with less than 100 units:
- Cash on cash returns for medium complexes are frequently better than for large complexes offering a wide variety of amenities and services.
- There are more medium size complexes available at any given moment. That means less competition from other investors and more opportunity to find one with exceptional cash flow.
- They require less equity to acquire. This means you can control the property as an individual or with one or two partners. You own a higher percentage of the property and thus a larger amount of the profits.
- You won’t be dealing with a big financial institution as the seller with a strict sale policy. The seller will likely be an individual or small partnership that can provide flexible sales terms if they choose.
- There is less upkeep and maintenance. You may be able to avoid the added expense of an onsite manager and full time maintenance crew.
- Often the less sophisticated seller has avoided raising rents because they’ve become chummy with the tenants or they are afraid the vacancy rate will go up. By studying the local rents and vacancy rates, you might find you can immediately increase cash flow through rent increases.
How to Find Money Partners for Real Estate Investing
In these times, cash remains king in the real estate investment market. There is a lot of money to be made buying from motivated sellers if you have cash to invest. In today’s very uncertain seller’s market, cash talks and financing contingencies walk.
The secret is having a cash source that you can tap into on a day’s notice and not take weeks to close a deal. Some of the most motivated seller’s are those staring foreclosure in the face within days. Why should they care what the house or commercial property sells for at that point? They aren’t going to see a dime.
You’re not taking advantage of people down on their luck in this scenario. You’re actually throwing them a lifeline in an attempt to keep them from further damaging their credit history with a foreclosure. The sellers’ can send in any short sale offer in hope that the lender accepts.
However, you need a funding source that will write a check on the spot for a great deal. You may be surprised to learn there are more of these people around than you think. Private investors are looking for passive income streams paying more than the 1% to 2% they can earn with bank CDs or in the money market.
These are not hard money lenders that can cost a lot to borrow from. These are rich individuals and people with self-directed retirement accounts. Not many people know it but it’s possible for individuals to manage their own retirement accounts and invest in real estate. It’s a great alternative to investing in the uncertainty of Wall Street or low interest bank options.
These people are savvy investors and are not going to give you access to their money without being sure you know what you are doing and understanding how you will repay them.
The five most important pieces of information they want are:
1. Exactly how you will invest the money.
2. How you will secure the loan or investment.
3. When they will be paid back.
4. How much they will earn on the loan.
5. Proof you know what you are doing.
Building Your Network For Real Estate Investing
Raising investment capital has become a challenge in today’s tight credit market. As your real estate coach, I want to share a process for raising capital that you should be employing today. Namely, networking with people that invest in business opportunities.
Look around at those that are the most successful at real estate investing and you’re sure to notice one thing they have in common is networking. The people that are making serious money and have the best deals have large networks throughout the business community.
You will find plenty of networking opportunities at the local level. Real estate investment clubs, the chamber of commerce, and civic clubs like the Rotary and Lions are great places to meet people looking to network for business opportunities just like you are.
As your real estate coach, I want to give you the best advice. That includes networking for financial capital well beyond the real estate industry. Naturally, you want these key players in your professional network:
- Wholesale Sellers
- Investment Realtors
- Mortgage Brokers
- Real Estate Attorneys
- Other real estate investors