Getting started with Commercial Real Estate Investing, or an experienced investor? This is a weekly podcast on the steps that I take to make my Commercial Real Estate investments (Retail, Office, Self Storage, etc) including successes and lessons learned. We cover advanced techniques for purchasing, operating, and exiting your properties, from the best people in the industry. You will learn everything you need to know about real estate investing. We are based in San Francisco / Silicon Valley and also cover how technology affects Commercial Real Estate, and how you can stay ahead of the game.
With so many people interested in buying or building self storage facilities, how do you find one, and add value to a facility? How do you differentiate from the competition? Clair Hoover, an experienced operator with over 20 years managing self storage facilities shares some golden tips.
You can read this entire interview here: https://bit.ly/3vv9eYq
The cap rates are very compressed for self storage, how do you go about purchasing them nowadays?
You do what everybody has had to do in tight times and in every part of real estate, you end up looking at more properties and bidding on less. A year ago, for every 20 properties we looked at, we would put an offer on one. I’m guessing right now it’s closer to 100 properties that we look at before we find one that we think to even barely buy. It’s a challenging time. I think patience is part of it. But also we want to keep growing. So we keep sorting through every haystack we can find, trying to find some bargain buys.
What are some value add methods for self storage facilities, since you have so much experience there.
When we buy a property we like to see what we call the triple play. We like to see upside on rate management, we like to see upside on occupancy, and we like to see upside on expansion opportunities. We will settle for two out of three, but we rarely would buy something that doesn’t have those opportunities available.
The biggest mistake we see today would be under-managing rate management, there are so many opportunities there, you will actually find people in self storage who brag about 100% occupancy. They’ll brag about the fact that they have the lowest price option in their market. Think through the math on what I just said and what they’re laying on the table. I love meeting people like that I love making an offer on their property, a lot of upside on rate management.
Another one is, a lot of people are missing admin fees, it’s become customary, in our markets at least, to be charging admin fees. It covers some of your costs to put a client in and it’s accepted by the market. So again, you’re just letting money on the table. And you mentioned cap rates, when you started talking about $2,000 a year or even 10,000 in admin fees, you take out a five or even a four percent cap in some markets, that’s serious cash being left on the table by not maximizing that.
The other two other upsides I mentioned already were occupancy. If you’re low occupancy, I would invest in marketing, you’ve to fill that facility up, that’s dead dollars on the table. The last one, a lot of people say is not available to them, but it often is, and that’s expansion capability. If you’re on a five acre parcel, and it’s maxed out, you’re not thinking outside the box, there has to be some land within a mile or two of you somewhere that you could add more storage to and you probably don’t need to increase your labor costs. You can probably run both facilities out of one office if needed.
Another one is tenant insurance. If you’re not selling tenant insurance, there’s a good chance your tenants aren’t covered. And it’s not a matter of if, it’s a matter of when you’re going to have an issue whether it be a fire, or a flood, or wind damage, something’s going to hurt your tenants belongings.
How do you differentiate yourself from other facilities in order to increase your occupancy?
It can be different in different markets. I would say automation today is probably the best way to differentiate yourself. You’ve to be one of the strongest digital marketers in your market. If you're not, you're probably alienating anyone under the age of 40. And quite a few of us over 40 are going to write you off.
How to add value to industrial investing, an asset class full of competition? What were some of the major lessons learned getting into the industrial asset class? Monick Halm, founder of Real Estate Investor Goddesses will be sharing her insights.
You can read this entire interview here: https://bit.ly/32GC1N0
What are some value add strategies in industrial?
There's a niche in industrial that we do called a sale leaseback, and sale leaseback is this, there's a company that has a facility that they are using and they want to sell, mostly because they want to get the equity out of it. But they still want to use it. So they sell it and then they lease it right back. This is very, very niche, very few people do this. And because it's so unusual and so few people do it, that really is the value add. We'll buy it and then the seller becomes a tenant, usually with a 20 year lease, built in rent increases, NNN. They're paying rent, property taxes, insurance, and maintenance. If there's an issue with the toilet, they fix the toilet, if there's an issue with the roof, they'll fix the roof.
We will typically sell it in four to six years to an institutional buyer, a pension fund or insurance company. They love these deals with an industrial tenant already in place with several years of steady rent, payment history with 15 to 17 years left on the lease. They'll buy those all day, everyday but they do not do the sale leaseback, so that is where the value is added. We also buy these slightly below market so we have built in equity. We rent it slightly below market as well to the seller/tenant which also gives us room, that's how we're adding value.
And the one risk is in that tenant. So we do a lot of due diligence on the company to make sure that they're a super good bet, a good risk. They're well capitalized, they're very strong companies. The youngest company we've done one of these deals with is 17 years old. I think we've had one of those as old as 80 something years. They're very strong companies that are not going anywhere.
Besides digging deep into these tenants, are there any other lessons that you can share that you learned in this asset class so far?
With our 109 spots in Houston, we have our various industrial park, those parks are flex warehouse space. Some of it is a little bit like retail. We have all different types of tenants. We have three churches, bakers, garages, all different types of tenants.Those tenants had mixed success during the pandemic, and the economic fallout of all of that. Churches couldn't meet, so it was hard for our churches to pay rent, the retail type spaces weren't able to do business and the other ones were fine. What's nice about that is we had 109 tenants, we have a mix of different things. Some are good, some are not bad, some didn't do as well. The lesson we learned, is having that variety of different tenants and really working with them and staying in communication with them, helping them to access some of the federal money that was available for businesses, that helped allay the risks. In our sale leasebacks, we actually had no problem with those companies. They were all essential businesses. A lot of them, like our food ones, were doing more business in it than ever. They were great.
And when you had a certain percentage of your tenants not paying, did you have to raise more funds? How did you deal with that?
We were fine. We had to get creative, stay in communication with them. We had to help our tenants be able to access cash so they could stay in business. We did have a couple that closed their doors and weren't able to last, there were enough that survived. On that particular deal, we paused distributions but we definitely did not need to get extra cash.
What does it take from having a negative net worth to retiring within 4 years through real estate investing? Michael Manthei shares his journey, along with some of the top advices he would give us today, and some of the biggest challenges that he encountered throughout that journey.
You can read this entire interview here: https://bit.ly/2Qr3waJ
What are a couple of advices that you would want people to know, let’s say for back then, what was going through your head and what would you want someone that was in your situation to know in order for them to get their career started?
The action taking is a huge one for me. The other one is to get around positive people, generosity minded people that want to help, that was huge for me, I started going to local free meetups and just meeting people. And there were a couple of people in those groups that would walk properties with me, give me advice, that was a huge deal. I was always one that wanted to do everything on my own. And I’m realizing more and more throughout life, that that’s fine, and you can be successful that way. But working with other people is also an amazing way to add strength to your picture. If you have a certain skill set, and you work with someone that has a complementary skill set, that can be a beautiful partnership. With partnerships, you have to be very deliberate with, you don’t want to enter them flippantly. But if you really get to know the other person, and being open to working together can be a shortcut to success as well.
What were some of the biggest challenges that you faced during this journey?
Staying encouraged, and maintaining belief is challenging. If you have something in your heart that is greater than what you see around you, and what your peer circle is. That's probably why you're listening to something like this, it takes courage to break through the average of the people you're closest to, and enter a new realm of wealth and success. Just managing that, and staying encouraged is a huge part of the battle. That's more on the mindset side.
On something more practical, we started with such little capital, that it took every penny we had just to get into the next building. And I thought that we would just fund any renovations that were needed out of cash flow, which is fine. But you can't fund a renovation and live off of the same cash flow. You can't spend it in more than one place. If you're running a pro forma, and that's something that you need to be good at in this business, you typically put, in some of the older properties in our local city, 10-15% for maintenance and repairs. There were some years that even on a very large portfolio, I was spending 30 and 40% of the gross income on repairs, because I was buying buildings that had a deficit in deferred maintenance. It has worked out, we've made the repairs and dug out from that. We quality buildings now. But that made things tight for a while. And it's a great practice to make sure you have all the money upfront to correct any deferred maintenance. That's something we do today, if a building needs something, we raise additional capital and make sure the deal can support that and get that done at the beginning. I didn't really have that luxury when we got started. But we definitely had to work hard to still make it through.
What made you start thinking about real estate investing?
Like a lot of people, I read a little purple book. That was the first entry point that completely rocked my world. And I'm referring to Rich Dad, Poor Dad. It just blew my mind that people thought that way. I didn't grow up in a family that talked about money, or had any wealth.
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Hard money lending can be a great way to accomplish some projects, but what makes a good hard money lender? How can these loans go wrong? Brenda Chen, Head of Sales at Conventus, will enlighten us in this matter.
You can read this entire interview here: https://bit.ly/3wk3otO
What do you look for in a borrower when lending them money?
It's mostly the business plan, because we're hard money lenders. So it's mostly about the asset itself, how do you plan to either add value and sell, or add value and refi, what your plan is. We have two products, one is the bridge product where it's a shorter term loan. And then there's a long term rental product.
We look for different things, for the shorter term ones, we just want to make sure that you have an exit strategy. And if it's a flip, we want to know what the as is value is, because that's what we're basing our loan on. And then we can add a construction loan on top. So what is your scope of work, who you're working with, do you need to get permits, how long does it take to get permits, whether you've had experience with this type of project, because it's important for us that you succeed, and then also the after repair value. So if you're selling it, we'd like to see that borrowers have an idea of what properties are going for, and that the same sort of condition or square footage you have is similar as possible to the the subject property for comps. And experience matters a lot.
When can these types of loans go wrong?
We've seen delays a lot of the times, especially if you're in the Bay Area. San Francisco can take a long time to get permits. We've seen borrowers that thought it would take under 12 months for sure. And then they had to extend the loan. They didn't know the permits were going to take so long. Project delays. And then, this happens not as frequently because we do that after repair value, but sometimes if people are overly optimistic about after repair value, and they don't sell it at that price, then they might lose money on their investment, because they were expecting a return, but they don't get it because they couldn't sell it at that price, or it takes too long to sell.
Mostly it's either the As Is value comes back low which we, as a lender, we say it's always, you know, 80% or X percent of the purchase price or that percentage of the As Is value. Sometimes the property value comes back low, and then the investor at that point will need to decide, even if the appraisal comes back low, Do I still want to move forward on it? And sometimes they don't, and they find another property. I think that's good to catch ahead of time, whether they find issues with the properties before the loan closes, and we're doing our due diligence as well. We've caught some things that unfortunately, the deals didn't go through. They also didn't have to go through with the project, which they might have lost money on as well.
How about new investors that have never done anything like that? How could they go about getting this kind of loan?
We can still work with them, we love working with them, as long as they have a business plan, they're putting their own money into the downpayment, skin in the game, and the property values are there, we can lend to them. Typically, we do vet new investors a little bit more, because especially if we haven't worked with them, because we want to make sure that it's their first project and that we want them to be successful. We do a borrower interview, if they're getting a rehab loan, or a renovation loan, and we even look at their scope of work to see if it's reasonable.
What is going on in the single tenant retail space? What are the top things you should negotiate in retail leases? We cover a lot of ground in the retail space with Randy Blankstein, President of the Net Lease Advisory firm The Boulder Group.
You can read this interview here: https://bit.ly/3lPrrw5
What is the difference between N, NN and NNN leases?
In single net properties, which we typically don't see in our sector, but certainly exists in the marketplace, usually the tenant pays rent and the property taxes and that's it. It's not the majority in the sector, but for single net it's rent and property taxes. That's it. For double net, which is the majority of the sector, double and triple net are equal, the tenant pays taxes, insurance, and some type of maintenance. For example, we have some freestanding property, let's use Walgreens as an example, who used to be a double net, but now it's a triple net lease, they converted a while back. When they were double net properties, the tenant was paying the taxes, the insurance and some maintenance. Walgreens carved out roof structure and parking lot as landlord responsibilities, which is pretty common for double net leases. And sometimes there's maintenance obligation of the tenant, and then replacement is the landlord's obligation. And sometimes the landlord has all those responsibilities, but on double net leases there's some type of shared responsibility, or landlord responsibility for those issues. For true triple net leases, the tenant is paying for everything. They pay for maintenance, repairs, taxes, insurance, everything is paid by the tenant, so there's very little to do, and you just pretty much own a property that just gives you a return without having to do any kind of management of the property. It's completely passive.
What are some super important things that you think landlords should definitely negotiate in these kind of leases?
There's 10's of things you can talk to on lease negotiations. But really, you need to focus on two things, because ultimately, a lease is only as good as the credit and financials behind the tenant, and/or the individual's success at this location. Even if it's a large public company, you still need to know that this location is ok, so that you have a strong renewal probability, that's what you're trying to figure out. So what you really need is store sales reporting for this individual location, you really want to know that the rental sales is in line with the tenant average with the market average, and that this is a strong performing location that has a high renewal probability, because that's the biggest risk of that leased property is, will they renew at the end of the lease term. So knowing store sales takes a lot of risk out of it. A lot of lenders want them and a lot of buyers want them. So it's really important to get to store sales. Also for private tenants, franchisees, other people that aren't public, you really need the tenants corporate financials, because even though this location may be doing well, or average, it's still backed by whatever parent is ultimately the guarantee on the lease. So you need to understand the strength of that guarantor, a 25 unit franchisee, some have a great balance sheet, some not so good. So you really need to know where the corporate stands. If I had a choice between the two, I would want my individual store sales first, because even if it's a bad franchisee, if this is their best location, they'll close the other locations first, and yours will still be standing, even if the corporation isn't doing well.
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What are companies looking for right now? Benjamin Osgood will share insights coming directly from office tenants. He has brokered over $250M in real estate transactions and is the founder of Recreate Commercial.
You can read this entire interview here: https://bit.ly/30DLrrv
What will office look like in the near future?
We've learned from COVID that we all don't necessarily need an office for work, because as the pandemic has shown us, we can work anywhere if we need to, give us a laptop and a wifi connection, and we're good from the work side of things. I think that's going to be a trend that we'll continue to see. But we've also learned on the other side of that that we still need a physical place to come in, meet with our team, foster our company culture, mentees need a place to be mentored. Conversely, supervisors want to see their people working, they want to make sure that, even though the Slack channel is green, the light is on, that they're actually working.
But then also, we're rethinking what is the workspace used for? Is it for work that is heads down? No, totally not. We need a place to come in, collaborate, innovate, throw ideas on a whiteboard, get over caffeinated, hang out with our team. We're tribal people, we want that human connection, I want that human connection. Most people want that human connection. I think most companies are going to need a physical space. And we can't forget that the office is very much a commodity in both hiring and employee retention. We know that companies want that really cool place to come work, there's a reason why those employees stay there and why culture is so integral to a company success, and zoom meetings have their limitations.
We're also thinking that maybe we don't need to spend so much of our lives commuting. And maybe we don't need to go into the office five days a week. We're definitely seeing an office space that's configured differently. For one, is it going to be dense, linear benching? Probably not. Even pre COVID, we knew that that was not the greatest way to work, it was simply a way to hedge against very expensive rent. Pack as many people into as dense of a space as you can. It's going to be more collaborative, more soft seating, more whiteboards on casters, maybe more of a residential feel with plants and furniture that reflects a more chill and welcoming environment rather than just heads down linear benching. One thing our clients are saying is, We realize we're taxed on working from home 100% of the time, it has lost its charm, but also, not commuting five days a week is pretty cool, too. So we are anticipating and predicting a hybrid.
How do you think that will affect how much office space companies will look for? Do you think it'll be the same, or smaller?
I think it's zero sum. On one hand, we are decreasing our densities. So by way of example, pre pandemic, especially in major cities, like New York, Chicago and San Francisco, we were planning for 150 square feet per employee. And now that's almost upended. it's at about 325 sf per employee, which is more than double the square footage. The space is being configured much differently. Now we're taking that same square footage, but rather than line it out with just rows of linear benching, it's more soft seating. It's like, Grab that corner over there with your team, grab your tablet, or laptops or whatnot, grab a coffee, let's talk, let's collaborate, let's innovate. You just need more space for that type of use.
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What's happening in the medical office space and why is it a good asset class to invest in? We are getting insights from Catherine House, National Healthcare Chair for the firm SVN. She is responsible for coordinating healthcare related commercial real estate activities in medical and dental office buildings.
You can read this entire interview here: https://bit.ly/3c47Vau
Why is the medical office space popular right now?
1. For those people who are looking for safety, and I think there's an element of a flight to safety for people who are interested in this sector, if you're looking for distressed asset opportunities, this is probably not going to be the right sector for you to be focusing on. There's a number of reasons for that. And if you actually look at the Medical Office fundamentals, there's some really interesting trends. If you look at rent growth, for example, I'm specifically looking at hospital affiliated medical office, the average rent continued to gradually increase throughout 2020. And they're predicted to continue increasing in 2021. So the national medical office rent is currently approximately $26 per square foot. And we've positive rent growth, currently at less than 2% nationally.
2. The other fundamentals to look at is occupancy. Occupancy for on campus is currently 93.3%, and 92.6% for hospital affiliated off campus medical office buildings. Occupancy trends have been very steady. And they're actually forecast to remain steady throughout 2021. If you compare that with our predictions that we were just talking about for regular office, we're talking about very stable metrics with vacancy below 10%, and predicted to remain below 10%.
3. The other thing that we're seeing is absorption rates are outpacing completions. If you look at cap rates, another great fundamentals to take a look at, we actually saw them decline in 2020. And declining cap rates, and steady rents actually mean an increase in the underlying value of the assets. So, based on RCA's data, the quarterly average MOB cap rate actually remains between 6.3 and 7%, since the beginning of 2015. So it's steady, it's safe. For investors interested in a safe steady investment, this particular sector was getting a lot of interest.
What is driving all of that demand?
1. One of the key reasons is that medical office is an essential sector that really remained open for business throughout the pandemic.
2, It's also an area where it is extremely difficult to do it remotely. For the most part, if you need to see your physician, you need to physically go into the office. Whilst there has been an uptick in trends, such as telemedicine, which is a very fascinating area to get into that I'm not sure we have time for today, in general, there is still that demand for in person visits.
3. And many physicians did have their income impacted in 2020, one of the reasons for that is a lot of the elective surgeries and procedures that are actually the most lucrative, many people actually put those off. So the revenue for the year and 2020 was down.
4. But in the long run, that businesses survived and actually are predicting to be extremely busy in 2021 and beyond.
5. And that's not even getting into some of the demographic trends that we're seeing with the aging baby boomers. There's a correlation as one gets older for an increased need for medical services. So we're actually expecting the demand for medical office to continue to grow significantly over the next 10 years plus.
What is happening in the office space in large cities like San Francisco? What has happened in the last year? What is happening right now? Will we ever see any deals? Reuben Torenberg, vice president at CBRE, will share his insights.
You can read this interview here: https://bit.ly/2MgPK8T
I've been dying to speak with someone in the office space that is focused in large cities like San Francisco, to see what has happened with office over the last year, do you mind sharing with us what is going on in your world?
It has definitely been a change from anything we've experienced in our career. The market has been placed completely on pause since March of last year due to the pandemic. As soon as it happened, as in many other large Metro cities, there was a mandate from the city that stated no one can occupy office space. Since then, all the technology companies locally have at first tried to defer their rent or get free rent with landlords. And unfortunately, they were not very successful because these landlords also have bills to pay, they have mortgages to pay, they have to keep up the operation of their building.
Since then, just over 8.5 million square feet of sublease space has been placed on the market. As the months went by, rates dropped from the mid to high 80s to mid to high 70s. Then a couple more months passed and rates dropped to the low 70s, then a few more months passed and rates have dropped into the 60s. Now, for subleases, we are seeing rates at 30% lower than what they were back in March 2020.
I assume that there aren't too many defaults yet, is that correct?
That is correct. There hasn't been too many defaults, what some companies have tried to do is cut their losses and seek a termination. Although landlords had been very hesitant to do so because of all the uncertainty going forward, if you were to terminate, and landlords had other tenants waiting in the wings, that's one thing. And you can agree to a termination with a penalty of a couple months rent and feel confident that you'll get the space leased again. But without any end in sight, it's certainly much harder to have those conversations. At least 80% of these technology companies still have their space in the sublease market, or are hoping to come to an agreement with a growing technology company who can use the space once shelter in place is lifted, and rid themselves of remaining obligation without suffering too much pain.
Is it safe to assume that landlords are not hurting right now? And nobody's trying to sell their office building?
Yes, I would say they aren't hurting as much as they likely will be if this continues in another year, just because the market has been so hot over the last five years that they've been able to get deals at the rates that they want for long term to lock in security for the building. And those who are going to sell their buildings right now are looking at a pretty difficult selling market. So what we're really seeing mostly is landlords trying to hold on, and get past the uncertainty of the virus and see how efficacious the vaccine is before going back into into the market to sell their buildings.
And what is the sentiment regarding office in general in your world?
I certainly think that they will eventually bounce back. But the trend right now is leaning towards satellite offices in secondary metros like Austin, Salt Lake City, Denver, and even Miami. These companies want to retain their talent and give them a place to work besides their homes.
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What are the major issues that can arise on a title commitment? We talk with Mindi McLain, attorney and co-owner of Wright Law.
You can read this entire interview here: https://bit.ly/3rPVNjT
Tell us some of the biggest issues that you have found in a title report before.
I have had some big messes, I don't even know how to describe how messed up a property can be. Deals that are too good to be true are typically not true. I've had a few deals where, especially if you're buying something from a family that has been in a family for a long time, and then somebody down the road decides they want to sell it, most of the problems that you see are with people that have died in the chain of title ad nothing's been done. There hasn't been a probate of their state, there hasn't been an affidavit of heirship. You're trying to build a family tree, and it has 80 branches, and they had 12 kids. I've had a lot of them, especially small deals, but we had to just go and find all these heirs that were lost. I look for the lost heirs and say, Hey, did you know that you have a 1/64th interest in this property? And would you mind signing this deed? So those can be wrecks, but it can usually be worked out.
Another issue is a family, and several people have died. And we find that one of the heirs is a minor, meaning they're under the age of 18. But they've come into title on a property. In Texas, you can get around that, but you have to get a court order allowing a parent to sell that property on behalf of the minor. And then the proceeds from the sale have to go into the court registry, and then it sits there until they turn 18. And then they can go and cash out their inheritance. That happens if someone dies and their heir just happens to be seven or eight years old, or 14 years old. They still are an owner of that property, but legally, they don't have capacity to own property or to sell property. And so you have to involve a parent or a guardian.
Some of the worst things I’ve seen are people buying property and not fully reviewing everything that’s in Schedule B and then finding out that there’s a restriction on their property that they didn’t know about. The title company is not going to necessarily tell you hey, you can’t use this property that looks like a retail store, you can’t use it for retail. They’re just going to note in their commitment that there’s no restriction, or a deed, or subject to whatever it was in this document. If you go back and read it, and you bought a property and you wanted to use it for a funeral home, and then you later found out that there’s actually a restriction on that property that says it can’t be a funeral home, or whatever you wanted it to be, then you have a problem because the purpose that you wanted that property for you cannot do it legally because there’s a restriction. And that wouldn’t be a covered claim, if that restriction was an exception to your policy.
Also leases, some people will see that there’s a memorandum of a lease recorded, and they won’t really dig into what the lease actually says and ask the seller, Can I see that lease ahead of time? And maybe the tenant either had an option to purchase a property or a right of first refusal or something like that. And they come back later and say, actually, you didn’t have a right to buy this, I had a right to buy it. So they try to undo the sale.
People are getting savvy to all the ways that you can generate income from rural properties. And so that includes not just oil and gas leases, and mineral production, but also solar farms, wind farms, all types of alternative energies.
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What is a title commitment? What is a survey? What should you watch out for in a title commitment? We talk with Mindi McLain, attorney and co-owner of Wright Law.
You can read this entire interview here: https://bit.ly/3jdLsLz
What is a title report? What is a survey? And what does it do for you when you're purchasing a property?
Title work means you're looking back in the records, so that when you buy a piece of property, you know that you have good title to, that you'll become the owner and you know exactly what is going to affect that property. There are lots of different things you can order from a title insurance company. Some people will call it a title report, some people will call it a title run. Most often what you want from them is what's called a title commitment. A title report is usually just a short one or two page document, it says title is vested in this person or entity. Here's the legal description and there might be a lien against it.
A title commitment is the most comprehensive title instrument that you might want if you're going to look at buying a property and most contracts are going to reference a title commitment. The title insurance company that you choose will take your contract, open title on it, and they'll look at who the owner is, what sort of easements, encumbrances, liens, problems are out there, and what needs to be done or fixed before closing, so that if you're the buyer, when you close, you have good title to the property. And when that commitment then closes, it becomes what's known as title insurance.
Surveys go hand in hand with the title commitment, but that's actually sending a licensed surveyor out to their property to look at what's on the ground. The title commitment doesn't do that, the title examiner does not visit your property and actually take a look at it. They're just looking at records, whatever is publicly available, but the surveyor is actually going to go out and visit your property, he's going to measure whatever you ask him to, the boundaries, or the improvements that are there.
What are some of the things that people should really watch out for in the title report and the survey?
I spend most of my time reviewing Schedule B, those are the exceptions to the policy, followed by Schedule C, the requirements. The first mistake that people make is getting the commitment, and not even really reviewing it or never getting past Schedule A. The second thing that they do is they review Schedule B, but they don't really dig into what it says. So it's going to say, these are things that are excluded from your policy, it's not going to give you the whole summary and analysis of what those things are. If you don't ask, what is that document recorded you'll never know what that document said. There could be an easement recorded, a lease recorded, or a deed recorded. But you'll want to ask the title company for copies of those documents.
This is where the survey can come in handy. If you get a title commitment, and it has 18 easements listed, or it has a right of way deed or something like that, your surveyor can take that Schedule B and those documents and he can locate those easements or those roadways on the ground, and then show you where they are on your survey.
The same with the survey, if you get it back and you have questions, you want to make sure your title commitment and your survey go hand in hand and that your surveyor has actually reviewed your title commitment and that he or she has included those documents that need to be included on the survey. That way you know where it's at, and your survey can actually be part of your title insurance.
Closing on a property the same day that the president declares a national emergency? Our friend Loe Hornbuckle checked that off on his real estate investing career last year. How did him and his team solve the problem that was about to arise?
You can read this entire interview here: https://bit.ly/2Mx2xUw
You closed on a property when COVID hit. This can be something that can happen at any point in time in different types of versions. It can be the economy or anything else. How did you guys overcome this problem?
I don’t think I’ll ever forget this, because how many people can claim that they closed a major real estate transaction on the day the President of the United States put the United States in a state of national emergency? Literally, the day we are closing on the deal, the President’s on TV saying we’re entering a state of national emergency and, like a lot of people, you’re in California, you have earthquakes, you have fires, there are all kinds of city and state emergencies, but I’ve never seen a national emergency before. So I didn’t know what that meant, or what was going on. All I know, is that I closed a very large real estate transaction, by some standard, $18 million is pretty large, on the day that the president is on TV, basically saying the sky is falling.
because our construction was being done in phasing, we went ahead and figured out what our three targets were, what we needed at a minimum to close the deal in terms of investor equity. Then the second question was, what do we need to do phases one and two? And the next question was, what do we need to do all three phases? So we broke the project up into a few different metrics When you're doing a raise, people always focus on the ceiling, how much money you're going to raise. The question that we asked ourselves was, what's the minimum amount of money that we can raise in order to not have the project be delayed? And so we came up with those three numbers.
Are there any other tips that you can give our listeners on how to deal with unplanned situations like this one?
If you were to think about all the things that it takes to write a business plan, I think the first thing you have to be is you have to be realistic. When you're realistic, and you're writing a business plan, one of the questions you should ask yourself is, how could this go wrong? What are the problems this deal could have, and then try to be creative and pre plan. So much about people that write business plans, it's all optimism. For example, if we just assumed, that we were going to raise this money, no problem, we hadn't set the floor, then we potentially could have had to rewrite the operating agreement, and that could have caused other investors to be spooked. Instead, we just said, Hey, this is the minimum amount we're going to raise, this is the maximum amount we're going to raise.
Always go through your business plan and just think through things that that could happen, maybe you won't raise all the money, maybe you'll have some price increases. You're going to need to have a healthy contingency, and things like that. A lot of what made us successful on this project, or come to a successful conclusion, really dealt with going in being realistic. And then also asking, Where can we have problems? And if we do have these problems, what's our plan in case we face them? Because having that in your back pocket, and when something does happen, you've already kind of planned for it. It helps a lot in the moment because you don't feel like you're being blindsided by something you couldn't see coming.
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In this episode I talk about setting goals for your investing this year. I think 2021 will be a great year for a lot of investors, and you guys have been taking the time to learn as much as you can. 2021 will be a great year to put all of that to work.
You can read this entire episode here: https://bit.ly/3b93z3h
First we need to look back at our 2020 goals, and what got accomplished and what didn't. I accomplished about 50% of my goals, and looking back, the biggest issue I see in not accomplishing the rest of my goals (guess what, it was not Covid!) is that my official accountability buddy and I did not follow up on our calls. And that was both of us, we did not hold each other accountable with our calls and our goals. Another serious part of this is that I did not block part of my day to really look at what is the most important thing that I can do that day, to help me get closer to my goals and take a couple of hours to just do that before getting into emails, before everything else. When we're having this one or two hours for ourselves in the morning, I think it's really important to always include the thought of how can I increase this by 100 times? Some people say 10 times. And I think 100 is even more powerful, it gets you thinking outside of your box, for instance who is my wealthiest friend who would be super interested in investing in real estate? Or what is the property that is going to give me the most return for my time? Not carwashes, I can tell you that!
Let's talk about one of the most popular forms of goal setting. And that is called SMART methodology, having Specific, Measurable, Attainable, Relevant and Time-Bound goals. So let me give you one example of one of my goals for this year:
Specific: I want to partner up with a friend who is an architect and has a lot of experience in not only remodeling things, but also adding things to spaces, and not only in the single family space, but also in other commercial and multifamily space. So we want to start small, and we want to build this relationship and grow from there. So that is the goal to get into the real value add through development and improvement of a property business.
Measurable: What is a measurable number for that? I want to buy and exit 12 properties, or 12 units with this friend in the Bay Area, which is where we live this year, we're going to be buying homes, or multi unit properties. At some point, she will take care of the renovations and the additions. I'll take care of the rest. And then we're going to exit.
Attainable: Are 12 units attainable? Yes. She said that she will be comfortable managing even 10 projects at a time. So 12 projects in one year, I think is very doable.
Relevant: Is it relevant? Yes. Homes right now are selling like hotcakes. And this is also a great way for us to not only make sure that we work well together, and also for us to be able to see and learn what other areas we can grow exponentially.
Time-Bound: The last part of the smart format of goal setting is for your goal to be time bound. So we are already in January. I think it's realistic that we start with one property by February, we'll start to reach out to lenders and real estate agents to help us with the properties, and then fundraise whatever we need for the project and start working with the contractors.
2021 will be incredible for real estate investing!
Subscribe to our Goal Accountability Group here:
- Send $20 for Jan OR
- Send $200 for the whole year (2 months off)
Calls will be on Thursdays 2-3pm PST, 5-6pm EST, depending on how many people join, we may have an alternative time as well.
This is our December 2020 Mastermind call. Our guests were Todd Sulzinger (mobile home parks), Victor Menasce (development, various asset classes) and Adriana Finnie (single family investing).
You can read this entire interview here: https://bit.ly/3mFeOCs
Steffany Boldrini (Self Storage, Car Washes)
I have been dealing with a new asset class that I invested in, and that is carwash. I was put through the wringer right away, within nine days of closing, one of the roofs caved due to snow, money has been already been stolen, and within 20 days of closing, and my maintenance guy quit without giving any notice. Thankfully, I was able to hire someone within a day. I'll be doing a couple of episodes on why car washes, what did we do to them within this last month, and how we are managing it from far away. What I can tell right now, is that it's a very hands on asset class with a lot of moving parts.
Todd Sulzinger (Mobile Home Parks)
One of the biggest things that is still impacting us is our inability to process evictions. I have properties in Georgia and Tennessee that are landlord friendly states, and in Georgia in particular, we had the courts closed in March, they opened back up at the end of July. And we had to start the eviction process on several people. We had several people that after a couple months process before we got a court date, they moved out just before their eviction was filed. Other people were still going through the process, we've got a couple of tenants now that have been in the park for almost a year that haven't paid rent. And we really have our hands tied.
Victor Menasce (Development, Various)
We've been busy with a number of new projects. And as you probably know, we also get a fair number of requests to consult on new development. For example we're doing a 150 unit apartment building up in Spokane, Washington for our client, we're doing a 60 unit townhouse subdivision just outside of Boise, Idaho, we are doing a boat and RV storage facility up in Austin, Texas. So we decided to formalize the consulting division and officially make it a core part of the business. And that's going to allow us to train the future leadership in the company. We're not going to accept every client by any means, but only those that we would say are intentionally congruent with that which we're already doing.
Adriana Finnie (Single Family Homes)
We're in single family homes in California, Ohio, Michigan, and Alabama. We started in California, but in the last three years, we decided that the rules are getting a little too dumb and that it's time to get out. So we've done it in a very leisurely way. We keep waiting for somebody to move, and then we put the house on the market. It has worked nicely until this year when nobody wanted to move for any particular reason. The biggest challenge is evictions.
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Todd Sulzinger: www.blueelminvestments.com
Victor Menasce: www.victorjm.com
Adriana Finnie: www.linkedin.com/in/adriana-finnie-4578ab12/
In this part I will cover getting the loan for the portfolio of properties, the LLC formation, hiring, as well as dealing with challenges.
You can read this entire episode here: https://bit.ly/341nXip
The first lender that gave us a loan approval initially gave us a loan approval with an extremely unreasonable request, which was to basically tie up cash until we pay out the loan, this gave us no reason to get a loan. What I did when I got that news was that I asked to set up a call right away with the loan agent. We got on a call, I explained everything, not only from the property side, but also from my experience side and how, we have a ton of mentors, how I have access to hundreds of people, and all of that. You really need to show them that you are resourceful, that you are a professional and also a lot of times that you were successful in your previous career. It was a quick call, it was I think, a 15 minute call. After that, the loan officer scheduled a call with the president of the bank, and I told him the exact same thing. I asked them if they had any questions, etc. Shortly after that, we got the approval, that was probably the next day or two.
First I decided to break it down into two LLC's, one for the car washes and one for the Self Storage. This is purely for liability reasons. And with this decision, we had to change our closing date by about seven to 10 days. Because the lender had to rewrite all of the loan documents, the title company had to rewrite everything and divide into two entities. So that took a little bit longer. Ideally, in the future, you need to make that decision in the beginning, because we also had to sign another offer, breaking it down into two entities, even though when I signed the offer, it was under our name and/or assignee, which means we can assign this to anybody.
We had someone in mind, but that person didn't even return my call when I left him a message, and the real estate agent had to remind him to call me back. So that was the very first red flag for me. And then after that, he showed up late for our very first meeting on site. And that was my second and last red flag. Some of you may know this, but there is a saying that says "hire slow, fire fast". You should take your time in finding the right person for the job, and do a really good job with the interview. And there are great resources out there. One of the books that I love is called "Hired", highlight everything that you can in that book, it is super helpful for hiring. And then on the firing fast side, people do not change. And I have seen that over and over again. And because this guy wasn't returning my very first call after we had agreed on him managing the property, and he was also late for our very first meeting, those were huge red flags for me. I decided not to work with that person.
Nine days after closing on the properties, the roof in one of the car washes caved because of snow. Honestly, I was not scared when he told me that. I said, Okay, this is part of the game. Nine days, whoo. I'm thrown in the wringer. I made a claim with the insurance company right away. And I cannot talk much yet about the insurance because the project has not being completed. But all I can say is that I am very pleased with Nationwide, they really are by your side. This company has been phenomenal with the claim that we made literally nine days after closing. About 20 days later, the main maintenance guy quit. I started searching for staffing agencies in the city, posted an ad on Craigslist, and hired someone the next day. It was a blessing in disguise.
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I will be talking about a project that I have been working on for a year and that closed about a month ago.
You can read this entire episode here: www.bit.ly/3g9laZd
This property came into my inbox because I have been getting alerts for self storage properties for sale. It was a portfolio of one Self Storage property and three self serve car washes. It took 84 back and forth email messages, plus some phone calls to get all the information that we needed to analyze the property, to agree on a price, and also one year from my first communication with them to the closing.
Things to ask for:
- Profit and loss statement
- Tax returns for the last 2 yrs
- Detailed explanations on expenses
- What does it entail to manage and operate car washes
- Price for rental units on self storage
- Phase I report
- A list of multiple questions regarding the property, age of roofs, type of floor (asphalt, concrete), type of building, age of buildings, etc
Due Diligence period:
- Ongoing list of questions and follow up questions
- Recommendations for local lenders and credit unions
- Recommendations for local real estate attorney to review title and surveys
- How much would it cost to add credit card machines to the car washes
- Information for all the service providers that they currently use
- Finding a local property manager for both sets of properties
Example of things that you always must follow up on, until it gets 100% completed:
- I had to get quotes for putting internet in all of the car washes for not only the credit cards, but also for the cameras that I was going to be installing. And it turned out that for all of the car washes I had to get a different internet provider because not a single one of them could provide service in more than one car wash, they just did not have service in the other properties areas. That probably took three full days worth of work to find the best internet provider for every single location.
- I searched for the best provider for the Self Storage Facility that was 1. affordable 2. could take online rentals 3. could take credit card/bank payments. The previous owner did not have a website, and they were sending out paper invoices to all of their renters. So I had to get someone to create a website for us, and also to be able to accept rent, accept credit cards and also have people be able to lease things online. I found this very young startup that fit every single need for the property. And because they were so young, I really had to beg for them to take me as a customer. And that took a lot of following up, I said, Guys, I'm with you, I know it's not going to be perfect, but I really think we can be a very good first few customers. So let's get this going. And we got them to agree to that.
- I had to follow up with the guy that agreed to be a property manager and was not even responding to my phone calls.
- I had to follow up with the insurance company, I wanted to continue working with the same insurance that was the provider for the previous owner, because it was a good price, plus that insurance provider already had all of the information for the car washes. After three weeks of not getting a quote and also following up with the agent, she tells me whoops, the underwriter thought this was a renewal and send it to the wrong person in the office. And this was one week before closing. So I started Googling for highly rated insurance providers in that whole area and got quotes from everybody that I could get my hands on, We also had to make sure that this provider was real and reliable (there are horror stories about insurance companies being outside of the country and never paying things out), make sure the insurance provider is rated A++.
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What is unit level profitability? What kind of tenant is best to pick for your industrial space? How do you add value to an industrial investment? Neil Wahlgren, COO of Mag Capital Partners, a real estate investment firm focused in industrial investing answers a lot of our questions regarding this popular asset class.
You can read the entire interview here: https://montecarlorei.com/how-to-invest-in-industrial-real-estate-part-2/
What is unit level profitability?
It refers to whether or not you have insight, as a landlord or as a real estate owner into the profitability of the particular location of the building that you're buying. If your tenant has several locations, you are interested on how profitable is this store in this piece of real estate that I'm buying.
When you say that you are getting properties at 8.5 cap rate, how do you add value to that property? Because you're dealing with the seller, and they're going to lease back the property. And it's going to be a 15, 20 year lease. So how do you guys bring value besides that 8.5 cap?
1. The first is cash flow, and with that cash flow with that net lease structure, you have an expense free set of cash coming in to the ownership pool. With those we typically structure our deals to target 8% going to investors minimum on year one, and that's going to increase year to year as rent bumps kick in. One of the nice things about these leases is typically they will have built in rent bumps. So without doing anything, you have typically one and a half to 2% increases in rent kicking in every year. And because there are no expenses, that rent is usually equal to the NOI of that property. Now imagine you have a static cap rate, I know for a fact my NOI is going to increase 2% a year. So that's the first way that I'm creating value such that if I hold it for five years, I've seen roughly 10% increases in NOI. And now at the same cap rate I can sell and see a significant increase in value.
2. The second piece is paying down principal on the debt. You are able to acquire between 70 and 75% leverage on debt on the real estate. Most of our real estate debt comes from local lenders, or credit unions, they know both the tenant company and the area very well. And that's even more important when you're buying tertiary real estate, where the local lenders really believe in the companies, oftentimes those companies have been in place for 40, 50, 60 years, and you're able to get more aggressive and better terms on the lending. We acquire fixed rate debt, fixed interest rate, usually in the low fours or high threes in today's environment. With that, every month, you're paying down principal on the debt.
3. And then the third is a little bit more subjective. We look to buy real estate in growing metros where we feel like there's a chance for a cap rate compression. For example, today Omaha is trading around 7, 8 cap for a lot of industrial properties. If we think that there's a good chance that this might compress down to a six or seven cap environment in five years, based on the growth that we're seeing in this area as a way to create value. And the other half of that third piece is what they call credit enhancement. Imagine if you buy a piece of real estate with a tenant that has $30 million a year in revenue, and in five years, that company is doing 100 million dollars a year in revenue. Now that's a much stronger tenant, which provides a lot more security on your lease. So now you're able to sell that same piece of real estate at a lower cap rate because you've reduced the amount of risk.
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What is the difference between Warehouse, Distribution, Manufacturing, Flex Industrial, and Specialized Industrial? How do you assess a single tenant risk profile within industrial? What is a sale leaseback as an alternative form of financing? Neil Wahlgren, COO of Mag Capital Partners, a real estate investment firm focused in industrial investing answers a lot of our questions regarding this popular asset class.
You can read the entire interview here: https://montecarlorei.com/how-to-invest-in-industrial-real-estate/
Can you elaborate on what each type of industrial properties are and what are the differences between them?
1. Warehouse distribution: this tends to be the most common. For example, that would be an Amazon distribution center. Those can range from a large, empty space, four walls, a roof, all the way to these extremely state of the art, modern, brand new Amazon distribution centers that have lasers, artificial intelligence, robot handlers with all the parcels coming and going. Ultimately, you are creating valuation and creating value through what's inside those four walls and a roof. That defines the warehouse distribution side.
2. Manufacturing: that tends to be a range. Everything from four walls, typically metal sided, oftentimes built from scratch for a particular operating company. These operating companies are typically core producers, they can make everything from widgets to industrial dryers, mixers, aerospace parts, and even commercial food, really anything that's made, oftentimes B2B, where you're creating large things with specialized equipment inside of them. Those are categorized as manufacturing space, some will be more agnostic, where you have just a core building, and sometimes five or 10 ton cranes on top. And on the other end of the spectrum, you can have some very specialized built to suit ones, oftentimes irregular shaped buildings. For example, the Boeing manufacturing plant outside of Seattle. You have a massive building that's unlike commercial or industrial real estate in the area.
3. Flex industrial: imagine an entire tenant area, each typically with truck bays, loading and unloading facilities, and those tend to be very flexible in that you have an outer shell of a building. And then the interior walls and the actual square footage of each tenant space is adjustable by the owner of the building to meet the needs of the tenants. Oftentimes, tenants will grow and they want to knock down a wall, take some of the adjacent space, and oftentimes that industrial will be more of an even mix of office and warehouse space.
4. Specialized R&D industrial: that's kind of the catch all for everything else. It can be everything from laboratory space to really high tech, pharma type of real estate, or everything in between.
The thing that I always worry about within industrial is most of them are single tenants, can you elaborate on how you or any investor should approach that when looking at a property?
Absolutely. And you are right about that, the vast majority of industrial spaces tend to be single tenant occupied with the exception of those flex industrial. One really important thing to look at is, with a single tenant, you do have more or less a binary set of risks there. Either your tenant is in place, financially solvent, paying rent, or they’re not. And that gives a lot of investors pause. If that tenant declares bankruptcy or defaults on their lease, you can find yourself in a position where you still owe debt service.
How should you fundraise? What are the best practices? Ben Kogut, partner at HJH Investments will share his extensive experience with fundraising for syndications.
You can read this entire interview here: https://montecarlorei.com/getting-started-with-real-estate-syndication/
Walk us through your first syndication raise. What did you do? How long did it take for you to raise the funds? What were the results? Lessons learned?
It all starts with the deal, making sure that the deal itself is solid. And for me, a good deal looks like predictable cash flow. Generally speaking, that means that we have a high credit tenant with a long term lease, or multiple long term leases, something to that extent. And so making sure that all the numbers, the debt, that we structure our deals where we have a high net worth individual sign on the debt, and that the assets are in an area that we think are going to appreciate.
On my first deal that started with my relationships. People that I've known throughout my involvement in real estate for the past 15 plus years, plus people that I know throughout my involvement in the community, I basically just started there by talking to people, Hey, here's the deal. Here's what I like about the deal. Here's what I don't like about the deal. And here's what you may expect by potentially investing in a deal like this.
But the best advice I could say if anybody's thinking, Okay, I want to raise money or I'm thinking about one day raising money. Then now is the time to start telling people within your sphere of influence. The people that already know that you're a smart, capable individual, and that you're working on a deal, or you have a deal, Hey, would you be somebody that would be interested in investing with me once I get a deal, and I think a deal will look like this, whatever that is. If you're in triple net properties the way I am, or if you're in multifamily, or all the other different asset classes, which there are many.
Now that you're raising all of your funds in less than a month, what are some of the best practices for fundraising for a syndication?
1. Putting together a clear and concise investment deck, to make sure that people understand what it is that that we're trying to accomplish.
2. This is a new addition to my practice, I've been putting together a short video where I just stand in front of the property, and I talk about it. What are we seeing here. Some people really care about what the property looks like. Some people could care less. They don't care where it is. They want to know what are the leases, who are the tenants, what are the terms? What kind of debt do we have? If I am going to put this much money in, how much am I going to get out and when. I'm trying to provide that type of data to a broad range of people.
3. Communicating with with your investors. Right now we have upwards of 180, or close to 200 existing investors amongst our portfolio, that's always the best place to start.
4. Another piece of advice I could give people, that I struggled with at the beginning, but is really good advice that someone gave to me is to be indifferent. To be indifferent to whether or not somebody invests in that deal or on you. Completely indifferent. I really do not care if you invest in this deal or not. It really set me free, it really takes the pressure off. I don't want anybody feel pressured to come into a deal.
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What are the legal aspects of forming your LLC when investing in commercial real estate? We are talking with Garrett Sutton, a corporate attorney, asset protection expert and best selling author who has sold more than 900,000 books to guide entrepreneurs and investors.
You can read this entire interview here: https://montecarlorei.com/llc-strategies-to-protect-your-real-estate-assets/
How should a real estate investor organize their LLC’s for best protection?
We like having an LLC set up in the state where the property is located. If you buy a property in Oregon, we set up an Oregon LLC to be on title to the Oregon property. And in all 50 states if a tenant sues, or the law where the property is located is going to apply, if we have a number of LLC’s and we want to protect against the outside attack, that tenant suing is the inside attack, they have a claim directly against the LLC that holds the real estate, the outside attack is you get in a car wreck. It has nothing to do with the real estate but your insurance doesn’t cover the claim. And in that case, we like Wyoming and Nevada to own the Oregon LLC. If you have a property in Utah, we’d have an Utah LLC.
Let’s dive into all of the documentation that you guys will be sending us after an LLC is formed.
We submit the Articles of Organization to the state. It’s a very short form because this one document is a matter of public record. Anybody can look it up and see what’s on it. We don’t want to put too much information on that.
Then behind that public document, you’re going to have the Operating Agreement, which is the roadmap for how you’re going to operate the LLC. Who are the members of the LLC? What percentages do they own? When are we going to have meetings? Can we have telephonic meetings?
The Certificate of Formation comes back from the state saying, Yes, you’re formed, and the filing.
The EIN stands for Employer Identification Number. That’s like a social security number for your business.
We also have minutes of the first meeting.
The membership certificate is like a stock certificate.
How does an investor pays himself with an LLC?
If you have real estate, and you’re just holding and receiving income from real estate, and we consider it passive, then the money would flow from the LLC to you as a distribution and you’re going to owe tax on that as well. You’d write a check from the LLC, to you personally and then you would cash that check and put it into your personal bank account. So we’d have money coming into the LLC from rents, let’s say you own a duplex, the rents come into the LLC, you pay all the expenses at the LLC level, and then you make a distribution from the LLC to yourself.
What else is important for our audience to know?
1. Every year you have to pay a fee to the state, like we mentioned, Wyoming is $50 a year.
2. You have to have a Registered Agent in the state where you’ve set up the LLC and a state where you’ve qualified to do business, like a Wyoming LLC qualified in California, you’d have to have a Registered Agent in Wyoming and California in that case.
3. You need to have the separate bank account, as we mentioned, you can’t co-mingle funds.
4. You need to do the minutes every year.
5. You need to make sure that on all documentation, you’re using XYZ LLC and you’re signing as manager, not as a personal owner of the property.
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This is a transcript of our 4th Mastermind Call with a group of experienced investors to understand where each investor is and how they are dealing with the Covid-19 lockdown and its consequences.
You can read this entire episode here: https://montecarlorei.com/mastermind-call-what-are-top-investors-doing-during-this-crisis-multiple-asset-classes/
Self Storage and Retail
Going into month 7 of the quarantine in San Francisco, some places are being allowed to reopen at limited capacity such as nail salons and hair dressers, still there is no indoor dining allowed, although restaurants may be able to reopen at 25% capacity at the end of the month. A lot of restaurants and boutique gyms have permanently closed. There are a lot of vacant retail space for rent in all areas of the city. As far as housing, new, high end condos that are located near the large company offices are selling for 25% less than a year ago. Apartments for rent are between 15-30% cheaper than this time last year.
Mobile Home Park Operator
He is seeing that buyers are taking a little bit more time and there seems to be less frenzy about trying to acquire parks. A lot of people are looking, but they’re taking their time to buy. Part of it is that without that sense of a frenzy, people feel like they can take their time, it’s not as critical to get an offer out and to get a park under contract because they think it will still be there a month or two down the road. And that’s combined with some sentiment that people feel like they can wait for a little bit and hope that they might be able to find more motivated sellers over the next three to six months.
He is also taking it slow and being patient. He was starting to get a little bit more comfortable with everything around August and started to be a little more aggressive in the acquisition side, mainly looking in the Charlotte market. He thinks that the Charlotte market is really great long term, especially in light of everything going on. He thinks that the diversity of employment there is really good and sees that as a good long term market, but he stepped back a little bit when that CDC moratorium came down.
Senior Living / Assisted Living
They’ve been dealing with a lot of changes in the visitation front. As far as operationally, they are going to see a lot of interesting deal flow in the assisted living memory care, skilled nursing space. They’re at a demographic trough that’s going to exist for a little while. That’s where the baby boomers don’t need care yet. And their parents and people that are older than them are passing away faster than they’re being replaced. They’re at that point now for the next couple of years, where it’s going to be a little bit of a demographic challenge in this business, and then it will turn pretty sharply.
The past month has been definitely unexpected. They’ve a number of projects in Lake Charles, Louisiana, that got hammered by Hurricane Laura and they got to see how well the site would perform under heavy rain conditions and it performed well, including a tropical storm that came through recently. The last month has been dealing with that situation, and it has opened up more opportunities. So overall, it’s actually been good for them. They’re still seeing opportunity for new construction. They’ve three projects that they’re doing. It’s never a straight line, there are always surprises, like lenders doing the bait and switch thing pretty liberally, saying that they’ll give you amazing terms, and the loan committee comes back with this concern. So the interest rate is going up. Apart from that, it’s business as usual. They’re being very careful not to make major long term commitments unless they really see very strong market fundamentals. They’re still bullish in some markets.
Nobody gets anywhere alone, everyone that is successful has gotten there with the help of many, many people. I'll also talk about how you can start your real estate career from zero and get your first deal done.
You can read this entire episode here: https://montecarlorei.com/how-to-grow-your-real-estate-network-and-how-to-start-your-investing-career/
How to Grow Your Network:
Join Meetups in your area, even if they’re only doing online events, start attending them and getting to know people in your area.
Go to as many real estate events and conferences as you can. You want to meet as many people as possible, make a note on their business card of what they focus on, make a note on what you guys talked about, if they have kids or what are their hobbies. When you get home, transfer all your contacts to a spreadsheet, or a contact management app, and send them an email saying that it was great meeting them, and add them on Linkedin.
Make a name for yourself, start to be active in any platform such as Linkedin, Biggerpockets, Facebook groups. You want to join real estate groups in any of these platforms. Spend a few minutes everyday commenting on posts, and sharing insights.
Check in with your network every few months. This can be done via email, Linkedin, Facebook if you added them there, but the best of all is always a phone call. I’ve created a couple of partnerships simply by checking in on people on a regular basis and seeing how they are doing.
How to Get Your Commercial Real Estate Investing Career Started:
Become a commercial real estate agent. You can focus on selling or leasing properties.
You can start working for a real estate investment firm. I met someone that literally started as a secretary and worked her way up to a partner.
Start investing in syndications, this allows you to invest a small amount of money, and at the same time familiarize yourself with the paperwork, terminology, how companies evaluate deals, how they pitch deals, etc.
If you know someone that is a successful commercial real estate investor, you can have them be your mentor. Just make sure that you add value to that person, like bringing them deals based on their requirements.
Build relationships with commercial agents in the area. Start joining their mailing lists, start asking for OM’s (offering memorandum). This way they will familiarize themselves with your name and you’ll start to learn who may be a good broker to work with.
Start playing the Cashflow game by Robert Kiyosaki, it’s a very good game for you to start understanding how real estate investing works and how you can grow your net worth. You can either buy the board game, and invite your fellow real estate friends to play with you, or you can play on their website for free.
How to Make Your First Investment if You Have No money:
After you find a good property, and have shown to your network that you are learning all you can, invite friends and family to invest with you.
If no friends or family are interested in joining you, partner up with someone experienced. If you have a property under contract, you can always give a significant percentage of the deal to that person, just so you can have the deal under your name and you can show your future investors what you have done with that first property.
Buy and/or Play the Cashflow game here: https://www.richdad.com/products/cashflow-the-board-game
How are retail investors dealing with everything that is happening? What kinds of things are they looking at repurposing retail spaces for? How are they projecting revenues? Chris Ressa, COO at DLC Management Corporation shares some insights.
You can read this entire interview here: https://montecarlorei.com/how-is-retail-performing/
What's going on in the retail space?
There are certain places that are on fire and doing really well, and t