OfflineHello to everyone:
I have been doing this a very long time, and I have done it all for the most part except develop real estate.
You will never find my company on the internet, never find anything about me, good, bad or indifferent, yet I continue to buy properties on a almost weekly basis.
I have been critisized here by some for telling it like it is and it's all good.
If you really think residential real estate will make you rich by itself, it won't. Being rich is about how much you keep from what your efforts successfully undertake.
If you buy properties where you took out a loan, you will have what is called equity, and there are alot of investors who have properties that have delivered alot of equity, however, equity is a number on paper.
One of the greatest residential property investors of the last twenty years, Ron Legrand, said it best. He said, " Try buying groceries or paying a electric bill with equity, it will never happen ". Now the argument can be made that you can actually pull equity out of a property, and yes you can, however, the simplest way is through a home equity loan or a refinance and yes there are other ways, but they are through complex strategies.
The real money with real estate is in what is referred to as "residential commercial" and commercial properties. What is residential commercial?
Residential commercial is apartment communities and apartment buildings. These are apartment properties of 5 units or more. Some call apartment buildings, multi family. This is not accurate. If you have a triplex for example, you have a multi family property.
Lets say you found a three unit building, known in some markets as a triplex or a three flat, and you go to borrow funds from a lender, you will soon find that you are qualifying for the loan, based upon your credit standing, the amount of down payment you have, length of time on the job, etc.
The reason for this is that these properties are analyzed as a residential investment property and it is you who must qualify for the loan.
Lenders consider anything under 5 units a residential investment. This is why when you look at their loan programs and term sheets, you will see the term 1-4. This means that anything under 5 units, hence the 1-4 term is qualified as a residential investment.
When you begin working with properties that are 5 units and above, the property is considered commercial and it is a different ball game.
Commercial properties are evaluated differently. They are valued using the income and expenses, mainly the NOI, which is the Net Operating income.
Why is this? because a commercial lender knows that it will be the property and it's cash flow or Net operating income that will repay the loan, and that the money will not come from your pocket or resources.
The reason that this is where the real money is in real estate is as follows. If you own a 20 unit building, and it is fully occupied, you have 20 checks per month coming to you. Now if 2 units become vacant, you still have 18 checks coming to you, certainly enough income to make debt service and expenses.
Now lets say you have a single family home that your renting out or leasing out, you have one check coming in. Now lets say your tenant moves out, you have zero income, yet you have mortgage payments, water, electric, taxes. Lets take the mortgage payment only. Lets say that the mortgage payment is $700.00 a month. If you don't get another tenant in the property almost immediately, you have to make that payment from your own personal resources, and if the property is damaged and needs repairs, you may not be able to have a tenant in the property right away.
With commercial properties, very few if any lender will base their lending decision on the borrowers personal credit or experience, because you will be taking a loan as a entity, meaning a LLC or a Corporation and as such, you just are not the determining factor for a loan, the property and it's cash flow or NOI is the determining factor.
Of course, there are factors such as the appraised value, however, from a qualifying stand point, you simply don't matter.
Almost anyone can go out and buy apartment buildings, self storage, and other asset classes, anywhere in the country, small town to big city, on a regular basis and have very few challenges to ownership.
If I go out tomorrow and buy a property worth $2,000,000.00, borrowing $1,000,000.00, then I have added $1,000,000.00 to my net worth. That is one deal and only one deal. Lets say I do that four more times, I will have added $4,000,000.00 to my networth.
Now ask yourself this, how many single family deals would you have to do, and I mean actually close on, to add these numbers to your networth?
Now don't get me wrong, you can go out and make money in single family homes, but the risks are greater and the time frame to actually build wealth take much longer time frames.
Ok, now it is enivetible that someone will come here and say, commercial is hard to get into, alot to learn.
My reply to that will be that it takes no more time that reading one of Deans books and learning the strategies needed.
Another advantage to commercial properties is that you are dealing with professional investors and business people, who understand creative financing and dealmaking and there is no dealing with homeowners who have a emotional attachment to a property.
I wanted to take some time today to just post something difference here.
This is my eventual destination in RE! Its great to hear your expertise about how it works. DO you recommend any books that are as good as Dean's that teaches the ins and outs of commercial residential RE?
I'm thinking we still look for the ugliest properties in the best areas?
Is that a correct ascertainment? I know to look for CAP rates, NOI, and the 20 other ratios out there, but what about rehabbing and renovating a place to improve the CAP and NOI? How does a bank look at that?
I agree with you 100%, I bought my duplex with a simular paln in mind. I figured even if one unit is empty the other will carry the costs. But I always thought about bigger buildings but the numbers always made me leary. I guess I should look deeper into how it all works and maybe take that shot.
Thanks for an exellent post.
Richie
I am direct and allow me to tell you that if you really want me to pick apart your shameless manner of self promotion with regard to your loan program, I can.
I have been in the business long enough to know that your a broker not a lender. Your asking for a broker fee to be paid up front. Lenders do not charge a broker fee, they charge a origination fee. It does not matter if your refunding it at closing or not, it is illegal to ask for a commission or fees up front other than normal, customary costs such as title, appraisal, etc.
Also, most people do not have a 680 credit score here so your chances of finding alot of borrowers here who can qualify is not going to happen.
Also, your jumping in on a thread is not welcomed. Also. 100% loans no longer exist especially one's where all costs can be rolled into the loan, no matter how great your credit.
Its so true what you have said - but SFR are a good way to build up to being able to move on to the bigger apt. buildings. That is definitely my future goal! Was wondering - do you own properties all over, or are they all based in your area of NJ?
www.adeptpropertiesllc.com
my story:
http://www.deangraziosi.com/node/10404
I have been in the business long enough to know that your a broker not a lender. Your asking for a broker fee to be paid up front. Lenders do not charge a broker fee, they charge a origination fee. It does not matter if your refunding it at closing or not, it is illegal to ask for a commission or fees up front other than normal, customary costs such as title, appraisal, etc.
Also, most people do not have a 680 credit score here so your chances of finding alot of borrowers here who can qualify is not going to happen.
Also, your jumping in on a thread is not welcomed. Also. 100% loans no longer exist especially one's where all costs can be rolled into the loan, no matter how great your credit.
680 Credit these days are almost Impossible due to almost everyone including the wealthiest of the wealthy are in a hard time of keeping bills paid . unless the person is a College student w/No Bad credit i don't think its possible to find anyone w/really good credit.
It would be more realistic if he toke on people who are having trouble getting a loan such as people with BAD BAD LOW SCUMMED LOW CREDIT & CREdIT scare .
All that has been stated is so true and every commercial deal is different! How ever there are a few more things to consider with commercial. One thing, where does that 20% down on that $1,000,000 property come from?( just a silly example of the $$$ needed) You better know how to find and organize your PMLs!! Can you say and understand the word syndication??
Multi family will, with out question make a lot more money for you than SFHs. It is way more complex, that is a fact, period. It can be done, but just like SFHs the hard part is actually finding the REAL deal, knowing how to find that out and how to offer and finance the deal. No Ron Lagrand seminar or webinar will ever get you where you need to be to actually do this. SFH investing is where 99% of all successful multi family investors started. They met people and studied and learned along the way. One step at a time. I actually do know several very wealthy guys who just buy and flip SFHs and never went into Commercial. I know several HMLs that made their money on SFHs and became HMLs instead of going into commercial themselves, so there really is no ONE answer.
Good luck to all and HAPPY investing!!
Michael Mangham
MD Home Acquisitions LLC
Knowledge is power, but execution trumps knowledge. Tony Robbins
http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site
680 Credit these days are almost Impossible due to almost everyone including the wealthiest of the wealthy are in a hard time of keeping bills paid . unless the person is a College student w/No Bad credit i don't think its possible to find anyone w/really good credit.
It would be more realistic if he toke on people who are having trouble getting a loan such as people with BAD BAD LOW SCUMMED LOW CREDIT & CREdIT scare .
Sorry but this is a silly comment. To say 680 is impossible is ridiculous. There are many, many of us out here. 85% of the country is still employed and most are paying their bills just fine. It is hardly rare.
Why is it that people with bad credit think that lenders should lend to them? Would you lend your money to someone who doesn't pay it back?
Nationwide Transactional Lending at 1.5 points flat fee.
Chicago-area Hard Money Lending.
www.NorthSideFunding.com
Thank you for your comments, however, I do commercial transactions all the time. I have done many residential deals in the beginning and in my experience, it was far easier to acquire commercial property than residential.
I did say that you can make money with sfr's, however, you need to do far more deals with sfr's than commerecial to build wealth.
Is Commercial complex? yes and no. Once you learn how to do it, it is not any more harder than residential. I did not suggest to anyone that they give up on residential properties.
I agree with you to an extent. Your comment is just as silly as the other guys. Some people ended up with bad credit because of circumstances, not because they wanted to.
For those who not aware, there is a section on your credit report that allows you to have a statement added, to explain the issues surrounding your bad credit.
However, if someone just doesn't pay their bills when they are capable of paying them, than they deserve to be on the side of the table that says denied.
85,000,000 americans are not eligible to lend to, because of bad credit. If there were not many people out there with bad credit, you wouldn't have clients to do transactional funding to. They would just walk into a bank and get a loan. So those with bad credit are some of those who keep you in business.
I think you need to read this whole thread. Mike who is a friend of mine talked about a comment someone else made about a 680 credit score.
Thanks Mike-I recently attended a seminar on commercial property investing, and indeed, they did say exactly what you posted-it's definitely something to aim for, but many of us have to first do some SFRs to learn the basics
Valerie
Valerie
“And will you succeed? Yes indeed, yes indeed! Ninety-eight and three-quarters percent guaranteed!” ― Dr. Seuss
"I believe in angels, the kind that heaven sends; I am surrounded by angels, but I call them friends" - Unknown
My journal: http://www.deangraziosi.com/real-estate-forums/investing-journals/59110/...
Good Afternoon:
I wanted to take a moment to thank everyone for their comments. Allow me to add a few things.
First, I am saying to anyone, don't start out in residential, because that can be a great starting point. Please know that whatever type of asset class you undertake through your business model, that there are pluses and minuses.
For example, residential has a plus side and that would be that it is easier to learn than commercial. Your dealing with something that most understand. Private money funders understand it more so than they understand commercial.
The negative side is that you have one source of revenue. Like I said in my initial thread, if a tenant moves out on you, you will need to make sure you can get someone else in the property pretty quick, if you expect to keep the cash flow flowing.
Allow me to add a story in here that illustrates this point well. This was in the Dallas Morning News about three months ago. I happened to see it when I visited Dallas.
A young man named Kyle Williams always dreamed of being in real estate. He went out and bought a book or two, joined a investor club, made some contacts and set out to become a property flipper.
He found a single family home off Northwest Highway and Preston road, in Dallas. He setup the deal to buy it for $213,000.00. It had a value of double that once in good condition, it needed work, I think it said $9200.00
He met up with a investor who advertised they buy for cash and the investor entered into a deal for $265,000.00, a very nice pay day for anyone, new or experienced.
The investor called four days before closing and said his wife was filing for divorce and he could not buy any more property at the advice of his attorney.
When he tried to get out of the deal, he was told, buy it or be sued, because he used the investors pof letter and earned money, not his own, so as far as others were concerned, he was getting into a bad position and dragging some nice folks along with him.
He managed to find another investor from the same investor club who said, look I won't buy it, but I will fund it for you, so they extended the closing date ten days and went to closing. Kyle was now the owner of a property he was not ready to buy, faced with repairs that had to be done. The PM funder provided the repair funds as well.
Kyle found some firemen who did rehab work when off duty as well as a Dallas Police Woman who also did work on the side. The repairs were done, and within a two week period, Kyle had a tenant in there.
Two months went by and the tenant moves out, citing inability to make rent payments because they took a pay cut through work to keep their job.
Kyle took a walk through and found damages, his contractors estimate was $3300.00. $3300.00 Kyle did not have and the PM funder would not provide. Kyle was sunk. He owed the PM funder alot of money and since that time, he was forced to do a deed in lieu of foreclsoure.
Also, he has a blemished track record with the investor community. I don't know the final outcome, but I do know that these things happen all the time, in every city in America. This is a realistic scenario of what could happen.
Now am I saying it will happen to others, including here at DG? no, because I do not have a crystal ball, however, I have seen it time and time again.
I am not saying go out and try to buy a 500 unit apartment complex, the reality of that happening without big property ownership or management experience is not likely, but you can go out and buy 6 to 10 unit buildings and graduate to bigger properties as you gain experience. This is very real.
Apartment complexes are purchased everyday all over the country, using creative financing methods which include seller financing. I see deals like this everywhere.
Here is an example of the deals I see.
1. Houston, TX-144 units, 60% occupancy, Non qualifying assumable loan, seller held second. Needs some updating. Distressed seller.
2. New York City, NY-24 Units, 87% occupancy, $4,400,000.00 firm but seller will consider seller finance.
3. Houstin, TX-64 Units, distressed management situation, asking price $1,230,000.00, lender to lower price to balance of loan $1,230,000.00, lender to finance, non qualifying.
I see smaller deals as well. Let me also say that I am not suggesting anyone try to go after commercial deals, get your feet wet first and build a track record.
To prepare those of us accustomed to SFR, what advice can you give on what the differences are present between purchasing SFR and CR? )Other than ratios and calculations for CAP rate, NOI, Debt coverage ratio, cash flow, value per unit, gross rent multiplier, and how long it will take to double your investment)
Hello To Everyone:
I spent two days in NJ not long ago. I was hosted as was Pauly Jacobi at Mike and his wonderful wifes estate. This man built his wealth from Commercial and residential real estate.
His home was the biggest home I had ever stepped foot inside of, I think it was like 18,000 sq.feet. I got to go to his offices in Princeton, NJ.
I got to see some of the many properties he has purchased and I got to pick his brain and it was very educational. I also got to see where he started at and the very first property he ever purchased.
The point of the visit was to learn first hand how to do this business. I have read Deans books but it is doubtful I would ever get invited to Deans home. Not many would do what Mike did.
I just signed the purchase agreement to buy a hotel in Arlington, TX. Because of this one deal, I am a overnight millionaire or will be when we close December 10th, atleast on paper.
The deal was structured by Mike using the LLC Buyout technique he wrote about recently and I come to the closing table with the total sum of $500.00.
I managed to without using really any money other than $500.00, to acquire a fully operating hotel, MAI Appraised at $5,220,000.00 for $3,400,000.00 with the entire deal financed by the seller, and the hotel generates $930,000.00 per year before expenses and taxes.
I would have never been able to do this deal without his vast expertise, so to say I am excited is an under statement.
For those who want to move up to commercial, I would pay attention to what he says, he really knows his stuff.
This is great information. I was just beginning to think about getting into apartments. Thank you Mike. I may be PMing you in the future.
Gena
Blessings & Favor,
Gena.
Follow my Blog: www.genahoriatis.com
I can do all things through Christ who strengthens me. Phil 4:13
Psalm 1:1-3
Well gees, SIGN ME UP NOW! I'll do whatever it takes to get there! I was looking at a seller financing one in San Diego, but the numbers weren't working out to be profitable. So, I didn't pursue it. But, obviously the deals are out there in CRR.
This is exciting stuff. I can't wait until I can go commercial. Well I better first get at least one deal under my belt but this is really encouraging. Keep it up and I want to bookmark this as it motivates me to keep on pushing foreward.. Thanks again.
James Brogan
Commercial real estate is the place to be at the finish line. But most investors should learn real estate using 1 to 4 family homes. Without the basic knowledge, you can make some really big mistakes. Just remember if the reward is bigger, often times the risk is too.
Always Looking to Acquire Houses | Always Looking to Amaze Investors
Thanks for the note, Jimmy. Is it possible to share some of those techniques.
-pierre
Great info. Thanks for the post.
Sorry I beat you there first, and the $500 is the token nuisance payment amount to buy the seller out of the LLC. She is a multi millionaire and doesn't really need the money, that's the reason for the seller finance at such a large amount of money. I still will be in debt to the tune of $3,100,000.00 but it is a cash cow property and a great deal.
I owe a world of thanks to Mike for showing me how to structure this deal, I would have never known how to do it without his expert guidance.
I hear things went well with our private money guy. Talk to you later.
great info and thanks for sharing
Regards
Tom
Thanks for sharing this information. I just had an agent send me a list of commercial properties in my area (didn't know there were so many). I'm also checking myself to see what I can locate. Are there any books you would recommend to give me a better grasp on commercial real estate and getting started.
Thanks
i'm in Georgia and may have to take u up on ur offer to finance me.
Mitchell Real Estate agent and Real Estate Investor
Powder Springs, GA area 678-778-7817
i needed that data. i should analyze it when applying for funding, hopefully in a few days.
Mitchell Real Estate agent and Real Estate Investor
Powder Springs, GA area 678-778-7817
Hello,
This is all very interesting. So how does one get started in commercial real estate? My ultimate goal is to replace my husbands income so he can retire (he now has MS)and collect properties for cash flow and then sell some of them for cash in the future. We do not have enough cash laying around for a down payment on a 5 unit + plus building. How is this accomplished? Don't you need some cash to ger statred in something with a bigger price tag?
Thanks,
Peggy
A few weeks back I went to my 1st REI club meeting. The speaker was Joseph Scorese...National Direct Lender Commercial & Residential. Not only was he very educational and funny he really opened my eyes to this whole other world out there. It has definitely peaked my interest.
Thanks Mike & Jimmy for the great stories...
Barbara
"If you play with pennies, you will make pennies. If you play with dollars, you will make dollars." John D. Rockefeller
Peggy,
I saw your post and had to PM you just now.
This is all very interesting. So how does one get started in commercial real estate? My ultimate goal is to replace my husbands income so he can retire (he now has MS)and collect properties for cash flow and then sell some of them for cash in the future. We do not have enough cash laying around for a down payment on a 5 unit + plus building. How is this accomplished? Don't you need some cash to ger statred in something with a bigger price tag?
Thanks,
Peggy
Check out my journal:
http://www.deangraziosi.com/real-estate-forums/investing-journals/64065/...
My free website from Dean:
http://paradiseacquisitions.usapropertywholesale.com/
The Sky's the Limit!
Hello Mike,
I have sent you a couple of PM's and I have not received a response from you?
Please advise when you get a chance.
Thanks,
Joseph
Please check your private message as I have just a few more questions for you if you don't mind answering.
Thanks,
Joseph